United
States


Securities
and Exchange Commission


Washington,
D.C. 20549





Form
10-K




x
            ANNUAL
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934For
      the Fiscal Year Ended December 26, 2009oro
            TRANSITION
      REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
      1934


For the
transition period from _____________ to _____________




Commission
File Number 0-6966




ESCALADE,
      INCORPORATED(Exact
      name of registrant as specified in its
charter)
  Indiana
            
            13-2739290(State
      of incorporation)
            
            (I.R.S.
      EIN)817
      Maxwell Ave, Evansville, Indiana
            
            47711(Address
      of Principal Executive Office)
            
            (Zip
      Code)




812-467-4449


(Registrant’s
Telephone Number)




Securities
registered pursuant to Section 12(b) of the Act


Common
      Stock, No Par Value
            
            The
      NASDAQ Stock Market LLC(Title
      of Class)
            
            (Name
      of Exchange on Which Registered)




Securities
registered pursuant to section 12(g) of the Act: NONE




Indicate
by check mark if the registrant is a well-known seasoned issuer, as defined in
Rule 405 of the Securities




Yes o    No
x


Indicate
by check mark if the registrant is not required to file reports pursuant to
Section 13 or Section 15(d) of the Act


Yes o    No
x




Indicate
by check mark whether the registrant (1) has filed all reports required to be
filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the registrant was required
to file such reports), and (2) has been subject to such filing requirements for
the past 90 days.


Yes x    No
o




Indicate
by check mark whether the registrant has submitted electronically and posted on
its corporate Web site, if any, every Interactive Data File required to be
submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit
and post such files).


Yes o    No
o




Indicate
by check mark if disclosure of delinquent filers pursuant to Item 405 of
Regulation S-K is not contained herein, and will not be contained, to the best
of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. x




Indicate
by check mark whether the registrant is a large accelerated filer, an
accelerated filer, or a non-accelerated filer, or a smaller reporting company.
See the definitions of “Large accelerated filer,” “accelerated filer” and
“smaller reporting company” in Rule 12b-2 of the Exchange Act.




Large
      accelerated filer o
            
            Accelerated
      filer oNon-accelerated
      filer o
            
            Smaller
      reporting company x(do
      not check if a smaller reporting company)




Indicate
by checkmark whether the registrant is a shell company (as defined in Rule 12
b-2 of the Exchange Act).


Yes o    No
x




Aggregate
market value of common stock held by nonaffiliates of the registrant as of July
11, 2009 based on the closing sale price as reported on the NASDAQ Global
Market: $8,091,686




The
number of shares of Registrant’s common stock (no par value) outstanding as of
February 11, 2010: 12,682,759




DOCUMENTS
INCORPORATED BY REFERENCE




Certain
portions of the registrant’s Proxy Statement relating to its annual meeting of
stockholders scheduled to be held on April 30, 2010 are incorporated by
reference into Part III of this Report.





Escalade,
Incorporated and Subsidiaries




Table
of Contents




PagePart IItem 1.
            Business
            
            3Item 1A.
            Risk Factors
            
            6Item 1B.
            Unresolved Staff Comments
            
            13Item 2.
            Properties
            
            14Item 3.
            Legal Proceedings
            
            14Item 4.
            [Reserved]
            
            14Part IIItem 5.
            Market for the Registrant’s Common Equity, Related
      Stockholder Matters and Issuer Purchases of Securities
            
            15Item 6.
            Selected Financial Data
            
            18Item 7.
            Management’s Discussion and Analysis of Financial Condition
      and Results of Operations
            
            18Item 7A.
            Quantitative and Qualitative Disclosures About Market
      Risk
            
            26Item 8.
            Financial Statements and Supplementary
    Data
            
            27Item 9.
            Changes in and Disagreements with Accountants on Accounting
      and Financial Disclosure
            
            27Item 9A(T).
            Controls and Procedures
            
            27Item 9B.
            Other Information
            
            28Part IIIItem 10.
            Directors, Executive Officers and Corporate
      Governance
            
            29Item 11.
            Executive Compensation
            
            29Item 12.
            Security Ownership of Certain Beneficial Owners and
      Management and Related Stockholder Matters
            
            29Item 13.
            Certain Relationships and Related
      Transactions
            
            29Item 14.
            Principal Accounting Fees and Services
            
            30Part IVItem 15.
            Exhibits and Financial Statement
Schedules
            
            30




2


Part I




ITEM 1 — BUSINESS




General




Escalade,
Incorporated (“Escalade” or “Company”) operates in two business segments:
sporting goods and office products. Escalade and its predecessors have more than
80 years of manufacturing and selling experience in these two
industries.




The
following table presents the percentages contributed to Escalade’s net sales by
each of its business segments:




2009
            
            
            2008
            
            
            2007Sporting
      goods
            
            
            66
            %
            
            
            66
            %
            
            
            70
            %Office
      products
            
            
            34
            %
            
            
            34
            %
            
            
            30
            %Total
      net sales
            
            
            100
            %
            
            
            100
            %
            
            
            100
            %




For
additional segment information, see Note 14 – Operating Segment and Geographic
Information in the consolidated financial statements.




Sporting
Goods




Headquartered
in Evansville, Indiana, Escalade Sports manufactures and distributes widely
recognized brands in family game room and outdoor sporting goods products
through traditional department stores, mass merchandise retailers, and sporting
goods specific retailers. Escalade is the world’s largest producer of table
tennis tables. Some of the Company’s most recognized brands
include:




Product Segment
            
            Brand NamesTable
      Tennis
            
            Ping-Pong®,
      STIGA®Pool
      Tables and Accessories
            
            Mizerak®,
      Mosconi®Basketball
      Backboards and Goals
            
            GoalrillaTM,
      Goaliath®, Silverback®Game
      Tables (Hockey and Soccer)
            
            Harvard
      Game®, RhinoPlay®, Atomic®Archery
            
            Trophy
      Ridge®, Bear Archery®Fitness
            
            The
      STEP®, USWeightTMPlay
      Systems
            
            Woodplay®,
      OasisTM




Sears
historically was one of Escalade Sports largest customers and accounted for 18%
of total consolidated revenues in 2007. In 2008, the Company was unable to
negotiate satisfactory terms for continued sales of table tennis and billiard
tables. Sales to Sears in 2008, declined to 6% of total consolidated revenues.
In 2009, the Company has one customer in the Sporting Goods group, Dick’s
Sporting Goods, which accounted for 14.7% of total consolidated
revenues.




Escalade
Sports manufactures in the U.S.A. and Mexico and imports product from China,
where the Company employs a number of contract manufacturers.




Certain
products produced by Escalade Sports are subject to regulation by the Consumer
Product Safety Commission. The Company believes it is in full compliance with
all applicable regulations.




Office
Products




Operating
as Martin Yale, the office products business has a worldwide presence with
manufacturing facilities in North America and Europe. Besides the sales offices
located at each manufacturing plant, Martin Yale has sales offices in the United
Kingdom, France, Spain, China, Italy, South Africa and Sweden.


3


Martin
Yale products include: data shredders, paper trimmers, paper folding machines,
paper drills, collators, bursting machines, letter openers, and other office
related products. Martin Yale brands include Martin Yale®, Premier®, Master®,
Master View®, Mead HatcherTM, Intimus®, and Paper Monster®.




Martin
Yale products are sold throughout office products retailers, wholesalers and
catalog distributors. No single Martin Yale customer accounted for more than 10%
of Office Product sales during 2009.




Marketing
and Product Development




In both
the sporting goods and office product business segments, Escalade has rigorously
developed strategic plans to enhance and promote product branding. The Company
constantly evaluates the quality-to-price paradigm of its customers, and then
designs and redesigns its products to achieve the best fit. Marketing efforts
are then initiated through its retail partners in the form of advertising and
other promotion allowances. In general, the Company does not directly advertise
to end-users.




In order
to meet customer needs, each operating segment conducts its own independent
research and development efforts to design new products and enhance already
existing products. On a consolidated basis, the Company incurred research and
development costs of approximately $2.0 million, $2.3 million and $2.3 million
in 2009, 2008 and 2007, respectively.




Competition




Escalade
is subject to competition with various manufacturers in each product line
produced or sold by Escalade. The Company is not aware of any other single
company that is engaged in both the same industries as Escalade or that produces
the same range of products as Escalade within such industries. Nonetheless,
competition exists for many Escalade products within both the sporting goods and
office product industries. Some competitors are larger and have substantially
greater resources than the Company. Escalade believes that its long-term success
depends on its ability to strengthen its relationship with existing customers,
attract new customers and develop new products that satisfy the quality and
price requirements of sporting goods and office product customers.




Licenses,
Trademarks and Brand Names




The
Company has an agreement and contract with Sweden Table Tennis AB for the
exclusive right and license to distribute and produce table tennis equipment
under the brand name STIGA® for the United States and Canada. The company also
owns several registered trademarks and brand names including but not limited to
Ping-Pong®, Bear Archery®, Goalrillaä, The Step®, and
Wood Play® which are used in the Sporting Goods business segment and Premier®
and Intimus® which are used in the Office Products business
segment.




Backlog
and Seasonality




Sales are
based primarily on standard purchase orders and in most cases orders are shipped
within the same month received. Unshipped orders at the end of the fiscal year
(backlog), were not material, and therefore not an indicator of future results.
Consumer demand for sporting goods has typically been seasonal and driven by
holiday season demand; however, increased diversity in product categories, such
as playground and basketball, has helped the Company achieve more evenly
distributed revenues. In 2009, 2008 and 2007, approximately 49%, 52% and 58%,
respectively, of sporting goods sales came in the second half of the year.
Demand for Office Products has not been seasonal and is not expected to be so in
the future.


4


Employees




The
number of employees at December 26, 2009 and December 27, 2008 for each business
segment were as follows:




2009
            
            
            2008Sporting
      GoodsUSA
            
            
            259
            
            
            
            277Mexico
            
            
            104
            
            
            
            206Asia
            
            
            8
            
            
            
            8371
            
            
            
            491Office
      ProductsUSA
            
            
            93
            
            
            
            106Europe
            
            
            128
            
            
            
            134Asia
            
            
            8
            
            
            
            8229
            
            
            
            248Total
            
            
            600
            
            
            
            739




The
I.U.E./C.W.A. (United Electrical Communication Workers of America, AFL-CIO)
represents hourly rated employees at the Escalade Sports’ Evansville, Indiana
distribution center. There are approximately 15 covered employees at December
26, 2009. A 3-year labor contract was negotiated and renewed in April 2009; the
new agreement expires on April 30, 2012. Management believes it has satisfactory
relations with its employees.




Sources
of Supplies




Raw
materials for Escalade’s various product lines consist of wood, steel, plastics,
fiberglass and packaging. Escalade relies upon suppliers in various countries
and upon various third party Asian manufacturers for certain of its game tables
and non-security paper shredders. The Company believes that these sources will
continue to provide adequate supplies as needed and that all other materials
needed for the Company’s various operations are available in adequate quantities
from a variety of domestic and foreign sources.




SEC
Reports




The
Company’s internet site (www.escaladeinc.com) makes available free of charge to
all interested parties the Company’s annual report on Form 10-K, quarterly
reports on Form 10-Q, and current reports on Form 8-K, and all amendments to
those reports, as well as all other reports and schedules filed electronically
with the Securities and Exchange Commission (the “Commission”), as soon as
reasonably practicable after such material is electronically filed with or
furnished to the Commission. Interested parties may also find reports, proxy and
information statements and other information on issuers that file electronically
with the Commission at the Commission’s internet site
(http://www.sec.gov).


5


ITEM 1A — RISK FACTORS


Sales declined in
2009 and could continue to decline in 2010.




Overall
sales in both sporting goods and office products declined in 2009 due mainly to
consumer uncertainty generated by the poor economy in the United States and
globally. Sales may further decline in 2010. Recovering or replacing these
declining or lost sales will be a significant challenge. The Company cannot
provide any assurance that it will be able to recover or replace all or any
portion of these declining or lost sales.




Sales
to Escalade Sports’ largest customer declined significantly in 2008 and in 2009
and sales to this customer continue to be reduced.




Sears
historically was one of Escalade Sports largest customers and accounted for 18%
of total consolidated revenues in 2007. In 2008, sales to Sears accounted for 6%
of total consolidated revenues, representing a decline of 12% from prior year.
Although Escalade Sports had been a preferred supplier of sporting goods
products to Sears for more than 30 years and had won numerous awards from Sears
for delivering outstanding products and services, the Company never had a
long-term supplier contract with Sears. In 2008, Escalade Sports was unable to
negotiate satisfactory terms for continued sales of table tennis and billiard
tables, which products represented approximately 50% of total sales to Sears in
2007. The Company stopped supplying those products to Sears in the second half
of 2008 and did not supply those products to Sears in 2009. Although the Company
has achieved placement with other large mass-retail customers that will
partially offset this lost business, it cannot provide any assurance that the
Company will be able to recover or replace all of these declining or lost sales
to Sears.




If
the Company would lose significant customers in the future, the Company may have
difficulty in replacing such lost revenues.




The
Company has several large customers and historically has derived substantial
revenues from those customers. The Company needs to continue to expand its
customer base to minimize the effects of the loss of any single customer in the
future. If sales to one or more significant customers would be lost or
materially reduced, there can be no assurance that the Company will be able to
replace such revenues, which losses could have a material adverse effect on the
Company’s business, financial condition, and results of operations.




Markets
are highly competitive and the Company may not continue to compete
successfully.




The
market for sporting goods and office products is highly fragmented and intensely
competitive. Escalade competes with a variety of regional, national and
international manufacturers for customers, employees, products, services and
other important aspects of the business. In sporting goods, the Company has
historically sold a large percentage of our sporting goods products to mass
merchandisers, and has increasingly attempted to expand sales to specialty
retailer and dealer markets. Similarly, the Company has traditionally sold
office products to office products retailers and specialty machine dealers. In
addition to competition for sales into those distribution channels, vendors also
must compete in sporting goods with large format sporting goods stores,
traditional sporting goods stores and chains, warehouse clubs, discount stores
and department stores, and in office products with office supply superstores,
computer and electronics superstores, contract stationers, and others. Some of
the current and potential competitors are larger than Escalade and have
substantially greater financial resources that may be devoted to sourcing,
promoting and selling their products, and may discount prices more heavily than
the Company can afford.




If
the Company is unable to predict or react to changes in consumer demand, it may
lose customers and sales may decline.


Success
depends in part on the ability to anticipate and respond in a timely manner to
changing consumer demand and preferences regarding sporting goods and office
products. Products must appeal to a broad range of consumers whose preferences
cannot be predicted with certainty and are subject to change. The Company often
makes commitments to manufacture products months in advance of the proposed
delivery to customers. If Escalade misjudges the market for products, sales may
decline significantly. The Company may have to take significant inventory
markdowns on unpopular products that are overproduced and/or miss opportunities
for other products that may rise in popularity, both of which could have a
negative impact on profitability. A major shift in consumer demand away from
sporting goods or office products could also have a material adverse effect on
business, results of operations and financial condition.


6


Quarterly
operating results are subject to fluctuation.




Operating
results have fluctuated from quarter to quarter in the past, and the Company
expects that they will continue to do so in the future. Earnings may not recover
to historical levels and may fall short of either a prior fiscal period or
market expectations. Factors that could cause these quarterly fluctuations
include the following: international, national and local general economic and
market conditions; the size and growth of the overall sporting goods and office
products markets; intense competition among manufacturers, marketers,
distributors and sellers of products; demographic changes; changes in consumer
preferences; popularity of particular designs, categories of products and
sports; seasonal demand for products; the size, timing and mix of purchases of
products; fluctuations and difficulty in forecasting operating results; ability
to sustain, manage or forecast growth and inventories; new product development
and introduction; ability to secure and protect trademarks, patents and other
intellectual property; performance and reliability of products; customer
service; the loss of significant customers or suppliers; dependence on
distributors; business disruptions; increased costs of freight and
transportation to meet delivery deadlines; changes in business strategy or
development plans; general risks associated with doing business outside the
United States, including, without limitation: exchange rates, import duties,
tariffs, quotas and political and economic instability; changes in government
regulations; any liability and other claims asserted against the Company;
ability to attract and retain qualified personnel; and other factors referenced
or incorporated by reference in this Form 10-K and any other filings with the
Securities and Exchange Commission.




The
Company’s Senior Secured Revolving Credit Facility matures May 31, 2010 and the
Company may be unable to renew or replace this financing.




The
Company has significantly reduced the carrying value of its Credit Facilities
from $46.5 million as of year-end 2008 to $27.6 million as of year-end 2009 and
is and has been in compliance with all debt covenants under its Senior Secured
Revolving Credit Facility which was signed April 2009. The Company has begun
preliminary discussions regarding renewal of its Senior Secured Revolving Credit
Facility and anticipates finalizing a renewal or replacement credit agreement by
May 31, 2010, although there can be no assurances that such agreement will be
entered into or, if completed, that it will be executed by the loan maturity
date.




Operating
results may be impacted by changes in the economy that impact business and
consumer spending.


In
general, sales depend on discretionary spending by consumers. A deterioration of
current economic conditions such as that experienced in both the United States
and the global economy in 2008 and 2009 adversely impacted sales in 2009 and a
continuing economic downturn could result in further declines in revenues and
impair growth in 2010. Severely negative economic conditions could greatly
impair the ability and willingness of consumers to buy products. Operating
results are directly impacted by the health of the North American, European and
Asian economies. Business and financial performance may be adversely affected by
current and future economic conditions, including unemployment levels, energy
costs, interest rates, recession, inflation, the impact of natural disasters and
terrorist activities, and other matters that influence business and consumer
spending.
  If
the national and global financial crisis intensifies, potential disruptions in
the credit markets may adversely affect business, including the availability and
cost of short-term funds for liquidity requirements and ability to meet
long-term commitments, which could adversely affect results of operations, cash
flows and financial condition.
  If
internal funds are not available from operations we may be required to rely on
the banking credit and equity markets to meet financial commitments and
short-term liquidity needs. Even if the Company is able to successfully renew
the credit facility as discussed above, disruptions in the capital and credit
markets, as experienced during 2008 and 2009, could adversely affect its ability
to borrow pursuant to the Credit Agreement with Chase or to borrow from other
financial institutions. Access to funds under the Credit Agreement or pursuant
to arrangements with other financial institutions is dependent on Chase’s or
other financial institutions’ ability to meet funding commitments. Financial
institutions, including Chase, may not be able to meet their funding commitments
if they experience shortages of capital and liquidity or if they experience high
volumes of borrowing requests from other borrowers within a short period of
time.
 7
 Longer
term disruptions in the capital and credit markets as a result of uncertainty,
changing or increased regulation, reduced alternatives or failures of
significant financial institutions could adversely affect access to the
liquidity needed for business. Any disruption could require the Company to take
measures to conserve cash until the markets stabilize or until alternative
credit arrangements or other funding for our business needs can be arranged.
Such measures could include deferring capital expenditures and reducing or
eliminating future share repurchases, dividend payments or other discretionary
uses of cash.
  Current
financial conditions in the United States and globally may have significant
effects on customers and suppliers that would result in material adverse effects
on business, operating results and stock price.
  Current
financial conditions in the United States and globally and the concern that the
worldwide economy may enter into a prolonged recessionary period may materially
adversely affect customers’ access to capital or willingness to spend capital on
products and/or their levels of cash liquidity with which to pay for products
that they will order or have already ordered from the Company. In addition,
current financial conditions may materially adversely affect suppliers’ access
to capital and liquidity with which to maintain their inventories, production
levels and/or product quality, could cause them to raise prices, lower
production levels or result in their ceasing operations. Continuing adverse
economic conditions in our markets would also likely negatively impact business,
which could result in: (1) reduced demand for products; (2) increased price
competition for products; (3) increased risk of excess or obsolete inventories;
(4) increased risk of collectability of cash from customers; (5) increased risk
in potential reserves for doubtful accounts and write-offs of accounts
receivable; (6) reduced revenues and (7) higher operating costs as a percentage
of revenues.
  All of
the foregoing potential consequences of current financial conditions are
difficult to forecast and mitigate. As a consequence, operating results for a
particular period are difficult to predict, and, therefore, prior results are
not necessarily indicative of future results to be expected in future periods.
Any of the foregoing effects could have a material adverse effect on business,
results of operations and financial condition and could adversely affect stock
price.
  Negative
economic conditions could prevent us from accurately forecasting demand for our
products which could adversely affect our operating results or market
share.
  The
current negative economic conditions and market instability in the United States
and globally makes it increasingly difficult for the Company, customers and
suppliers to accurately forecast future product demand trends, which could cause
the Company to produce excess products that can increase inventory carrying
costs and result in obsolete inventory. Alternatively, this forecasting
difficulty could cause a shortage of products, or materials used in products,
that could result in an inability to satisfy demand for products and a loss of
market share.
  The
Company may pursue strategic acquisitions, which could have an adverse impact on
our business.
  The
Company has grown in part over the years, through acquisitions of complementary
companies or businesses, which have been part of the strategic plan and may
continue to pursue acquisitions in the future from time to time. Acquisitions
may result in difficulties in assimilating acquired companies, and may result in
the diversion of capital and management’s attention from other business issues
and opportunities. The Company may not be able to successfully integrate
operations that it acquires, including their personnel, financial systems,
distribution, and operating procedures. If the Company fails to successfully
integrate acquisitions, business could suffer. In addition, the integration of
any acquired business, and their financial results, may adversely affect
operating results. Escalade will consider acquisitions in the future, but we
currently do not have any agreements with respect to any such
acquisitions.


8


Growth
may strain resources, which could adversely affect business and financial
performance.




Both the
sporting goods and office products businesses have grown over the past several
years through strategic acquisitions. Growth places additional demands on
management and operational systems. If the Company is not successful in
continuing to support operational and financial systems, expanding the
management team and increasing and effectively managing customers and suppliers,
growth may result in operational inefficiencies and ineffective management of
the business, which could adversely affect the business and financial
performance.


Ability
to expand business will be dependent upon the availability of adequate
capital.
  The rate
of expansion will also depend on the availability of adequate capital, which in
turn will depend in large part on cash flow generated by the business and the
availability of equity and debt capital. Escalade can make no assurances that it
will be able to obtain equity or debt capital on acceptable terms or at all,
especially considering the current disruptions in the credit
markets.
  Failure
to improve operational efficiency and reduce administrative costs could have a
material adverse effect on liquidity, financial position and results of
operations.
  The
Company’s ability to improve profit margins is largely dependent on the success
of on-going initiatives to streamline infrastructure, improve operational
efficiency and reduction of administrative costs at every level of the Company.
Failure to continue to implement these initiatives successfully, or the failure
of such initiatives to result in improved profitability, could have a material
adverse effect on liquidity, financial position and results of
operations.




Business
may be adversely affected by the actions of and risks associated with
third-party suppliers.




The raw
materials that the Company purchases for manufacturing operations and many of
the products that it sells are sourced from a wide variety of third-party
suppliers. The Company cannot control the supply, design, function or cost of
many of the products that are offered for sale and are dependent on the
availability and pricing of key materials and products. Disruptions in the
availability of raw materials used in production of these products may adversely
affect sales and result in customer dissatisfaction. In addition, global
sourcing of many of the products sold is an important factor in our financial
performance. The ability to find qualified suppliers and to access products in a
timely and efficient manner is a significant challenge, especially with respect
to goods sourced outside the United States. Political instability, the financial
instability of suppliers, merchandise quality issues, trade restrictions,
tariffs, currency exchange rates, transport capacity and costs, inflation and
other factors relating to foreign trade are beyond the Company’s
control.


Historically,
instability in the political and economic environments of the countries in which
the Company or its suppliers obtain products and raw materials has not had a
material adverse effect on operations. However, the Company cannot predict the
effect that future changes in economic or political conditions in such foreign
countries may have on operations. In the event of disruptions or delays in
supply due to economic or political conditions in foreign countries, such
disruptions or delays could adversely affect results of operations unless and
until alternative supply arrangements could be made. In addition, products and
materials purchased from alternative sources may be of lesser quality or more
expensive than the products and materials currently purchased
abroad.
  Deterioration
in relationships with suppliers or in the financial condition of suppliers could
adversely affect liquidity, financial position and results of
operations.
  Access to
materials, parts and supplies is dependent upon close relationships with
suppliers and the ability to purchase products from the principal suppliers on
competitive terms. The Company does not enter into long-term supply contracts
with these suppliers, and has no current plans to do so in the future. These
suppliers are not required to sell to the Company and are free to change the
prices and other terms. Any deterioration or change in the relationships with,
or in the financial condition of our significant suppliers, could have an
adverse impact on the ability to procure materials and parts necessary to
produce products for sale and distribution. If any of the significant suppliers
terminated or significantly curtailed its relationship with the Company or
ceased operations, the Company would be forced to expand relationships with
other suppliers, seek out new relationships with new suppliers or risk a loss in
market share due to diminished product offerings and availability. Any change in
one or more of these suppliers’ willingness or ability to continue to supply the
Company with their products could have an adverse impact on liquidity, financial
position and results of operations.
 9
 Escalade
may be subject to product liability claims and the Company’s insurance may not
be sufficient to cover damages related to those claims.
  The
Company may be subject to lawsuits resulting from injuries associated with the
use of sporting goods equipment and office products that it sells. The Company
may incur losses relating to these claims or the defense of these claims. There
is a risk that claims or liabilities will exceed our insurance coverage. In
addition, the Company may be unable to retain adequate liability insurance in
the future. In addition, the Company is subject to regulation by the Consumer
Product Safety Commission and similar state regulatory agencies. If the Company
fails to comply with government and industry safety standards, it may be subject
to claims, lawsuits, fines and adverse publicity that could have a material
adverse effect on our business, results of operations and financial
condition.




Intellectual
property rights are valuable, and any inability to protect them could reduce the
value of products.


The
Company obtains patents, trademarks and copyrights for intellectual property,
which represent important assets to the Company. If the Company fails to
adequately protect intellectual property through patents, trademarks and
copyrights, our intellectual property rights may be misappropriated by others,
invalidated or challenged, and our competitors could duplicate the Company’s
products or may otherwise limit any competitive design or manufacturing
advantages. The Company believes that success is likely to depend upon continued
innovation, technical expertise, marketing skills and customer support and
services rather than on legal protection of intellectual property rights.
However, the Company intends to aggressively assert its intellectual property
rights when necessary.
  The
Company is subject to risks associated with laws and regulations related to
health, safety and environmental protection.
  Products,
and the production and distribution of products, are subject to a variety of
laws and regulations relating to health, safety and environmental protection.
Laws and regulations relating to health, safety and environmental protection
have been passed in several jurisdictions in which the Company operates in the
United States and abroad. Although the Company does not anticipate any material
adverse effects based on the nature of operations and the thrust of such laws,
there is no assurance such existing laws or future laws will not have a material
adverse effect on business, results of operations and financial
condition.




International
operations expose the Company to the unique risks inherent in foreign
operations.




The
Company has operations in Mexico, Europe and Asia.. Foreign operations encounter
risks similar to those faced by U.S. operations, as well as risks inherent in
foreign operations, such as local customs and regulatory constraints, control
over product quality and content, foreign trade policies, competitive
conditions, foreign currency fluctuations and unstable political and economic
conditions. The 2003 acquisition of Schleicher & Company, International AG
in Germany and the Company’s business relationships in Asia have increased our
exposure to these foreign operating risks, which could have an adverse impact on
international income and worldwide profitability.




The
Company could be adversely affected by changes in currency exchange rates and/or
the value of the United States dollar.




The
Company is exposed to risks related to the effects of changes in foreign
currency exchange rates and the value of the United States dollar. Changes in
currency exchange rates and the value of the United States dollar can have a
significant impact on earnings from international operations. While the Company
carefully watches fluctuations in currency exchange rates, these types of
changes can have material adverse effects on business, results of operations and
financial condition.


10


Failure
to improve and maintain the quality of internal controls over financial
reporting could materially and adversely affect the ability to provide timely
and accurate financial information, which could harm the Company’s reputation
and share price.




Management
is responsible for establishing and maintaining adequate internal controls over
financial reporting for the Company to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial
statements in accordance with generally accepted accounting principles.
Management cannot be certain that weaknesses and deficiencies in internal
controls will not arise or be identified or that the Company will be able to
correct and maintain adequate controls over financial processes and reporting in
the future. Any failure to maintain adequate controls or to adequately implement
required new or improved controls could harm operating results or cause failure
to meet reporting obligations in a timely and accurate manner. Ineffective
internal controls over financial reporting could also cause investors to lose
confidence in reported financial information, which could adversely affect the
trading price of the Company’s common stock.




Disclosure
controls and procedures are designed to provide reasonable assurance of
achieving their objectives. However, management, including the Chief Executive
Officer and Chief Financial Officer, does not expect that disclosure controls
and procedures will prevent all errors and all fraud. A control system, no
matter how well conceived and operated, can provide only reasonable, not
absolute, assurance that the objectives of the control system are met. Further,
the design of a control system must reflect the fact that there are resource
constraints, and the benefits of controls must be considered relative to their
costs. Because of inherent limitations in all control systems, no evaluation of
controls can provide absolute assurance that all control issues and instances of
fraud, if any, have been detected.




Failure
to effectively implement the global integrated information system (“SURGE”)
could cause incorrect information or delays in getting information which could
adversely affect the performance of the Company.




The
Company began an integrated information systems evaluation process in the fourth
quarter of 2007 which resulted in the selection of Oracle as its vendor. In
2008, the Company spent $6.6 million establishing the foundation and network for
a system wide-roll out. The project experienced some delays and the system went
live in the North American Office Products and one business entity within
Sporting Goods in the beginning of 2009. In 2009, the Company has spent
additional $0.8 million dollars. The Company is currently re-evaluating the
global integrated information system to compare costs to fully implement and
maintain this system with purchase and implementation costs and on-going
maintenance fees of other integrated information systems. Should the Company
decide to abandon the Oracle system, the remaining book value of the Oracle
system of approximately $5.9 million ($3.9 million, net of tax) would be
expensed over the estimated remaining economic life of the system. A decision
regarding full implementation options has not been made. There can be no
assurance the Company will have the necessary funds (estimated to be in excess
of $2.0 million) or the staff to fully avail itself of the control features
inherent in the system design. Without such utility, the Company management is
faced with cumbersome and time consuming efforts to manually consolidate its
financial information. Such inefficiencies and delays could cause sales and
profit to decline and/or could affect relationships with key customers and/or
suppliers.




The
preparation of financial statements requires the use of estimates that may vary
from actual results.




The
preparation of consolidated financial statements in conformity with accounting
principles generally accepted in the United States and the other countries in
which the Company does business requires management to make significant
estimates that may affect financial statements. Due to the inherent nature of
making estimates, actual results may vary substantially from such estimates,
which could materially adversely affect our business, financial condition, and
results of operations. For more information on our critical accounting
estimates, please see the Critical Accounting Estimates section on page 23 of
this Form 10-K.


11


Changes
in accounting standards could impact reported earnings and financial
condition.




The
accounting standard setters, including the Financial Accounting Standards Board,
the International Accounting Standards Board, the Securities & Exchange
Commission and the Public Company Accounting Oversight Board, periodically
change the financial accounting and reporting standards that govern the
preparation of our consolidated financial statements. These changes can be hard
to predict and apply and can materially affect how the Company records and
reports its financial condition and results of operations. In some cases, the
Company could be required to apply a new or revised standard retrospectively,
which may result in the restatement of prior period financial
statements.


Effective
tax rate may fluctuate.




We are a
multi-national, multi-channel provider of sporting goods and office products. As
a result, the Company’s effective tax rate is derived from a combination of
applicable tax rates in the various countries, states and other jurisdictions in
which the Company operates. The effective tax rate may be lower or higher than
our tax rates have been in the past due to numerous factors, including the
sources of income, any agreement with taxing authorities in various
jurisdictions, the tax filing positions taken in various jurisdictions and
changes in the political environment in the jurisdictions in which the Company
operates. We base estimates of an effective tax rate at any given point in time
upon a calculated mix of the tax rates applicable to the Company and to
estimates of the amount of business likely to be done in any given jurisdiction.
The loss of one or more agreements with taxing jurisdictions, a change in the
mix of business from year to year and from country to country, changes in rules
related to accounting for income taxes, changes in tax laws and any of the
multiple jurisdictions in which the Company operates, or adverse outcomes from
tax audits that the Company may be subject to in any of the jurisdictions in
which the Company operates, could result in an unfavorable change in the
effective tax rate which could have an adverse effect on business and results of
our operations.




The
market price of our common stock is likely to be highly volatile as the stock
market in general can be highly volatile.




The
public trading of our common stock is based on many factors, which could cause
fluctuation in the Company’s stock price. These factors may include, among other
things:




●
            General
      economic and market conditions;●
            Actual
      or anticipated variations in quarterly operating
  results;●
            Lack
      of research coverage by securities analysts;●
            If
      securities analysts provide coverage, our inability to meet or exceed
      securities analysts’ estimates or expectations;●
            Conditions
      or trends in our industries;●
            Changes
      in the market valuations of other companies in our
    industries;●
            Announcements
      by us or our competitors of significant acquisitions, strategic
      partnerships, divestitures, joint ventures or other strategic
      initiatives;●
            Capital
      commitments;●
            Additional
      or departures of key personnel;●
            Sales
      and repurchases of our common stock; and●
            The
      ability to maintain listing of the Company’s common stock on the NASDAQ
      Global Market.


Many of
these factors are beyond the Company’s control. These factors may cause the
market price of the Company’s common stock to decline, regardless of operating
performance.


12
 Information
security may be compromised.




Through
sales and marketing activities, the Company collects and stores certain
information that customers provide to purchase products or services or otherwise
communicate and interact with the Company. Despite instituted safeguards for the
protection of such information, we cannot be certain that all of the systems are
entirely free from vulnerability to attack. Computer hackers may attempt to
penetrate the network security and, if successful, misappropriate confidential
customer or business information. In addition, an employee, a contractor or
other third party with whom we do business may attempt to circumvent the
Company’s security measures in order to obtain such information or inadvertently
cause a breach involving such information. Loss of customer or business
information could disrupt operations, damage the Company’s reputation, and
expose the Company to claims from customers, financial institutions, payment
card associations and other persons, any of which could have an adverse effect
on business, financial condition and results of operations. In addition,
compliance with tougher privacy and information security laws and standards may
result in significant expense due to increased investment in technology and the
development of new operational processes.


Terrorist
attacks or acts of war may seriously harm business.
  Among the
chief uncertainties facing the nation and the world and, as a result, the
business, is the instability and conflict in the Middle East. Obviously, no one
can predict with certainty what the overall economic impact will be as a result
of these circumstances. Terrorist attacks may cause damage or disruption to the
Company, employees, facilities and customers, which could significantly impact
net sales, costs and expenses and financial condition. The potential for future
terrorist attacks, the national and international responses to terrorist
attacks, and other acts of war and hostility may cause greater uncertainty and
cause business to suffer in ways the Company currently cannot
predict.




These
risks are not exhaustive.




Other
sections of this Form 10-K may include additional factors which could adversely
impact business and financial performance. Moreover, the Company operates in a
very competitive and rapidly changing environment. New risk factors emerge from
time to time and it is not possible for management to predict all risk factors,
nor can the Company assess the impact of all factors on business or the extent
to which any factor, or combination of factors, may cause actual results to
differ materially from those contained in any forward-looking statements. Given
these risks and uncertainties, investors should not place undue reliance on
forward-looking statements as a prediction of actual results.




ITEM 1B — UNRESOLVED STAFF COMMENTS




None.


13


ITEM 2 — PROPERTIES




At
December 26, 2009, the Company operated from the following
locations:




Location
            
            Square
      Footage
            
            Owned
      or Leased
            
            UseSporting GoodsEvansville,
      Indiana, USA
            
            359,000
            
            
            Owned
            
            Distribution;
      sales and marketing; administrationOlney,
      Illinois, USA
            
            108,500
            
            
            Leased
            
            Manufacturing
      and distributionGainesville,
      Florida, USA
            
            154,200
            
            
            Owned
            
            Manufacturing
      and distributionRosarito,
      Mexico
            
            66,500
            
            
            Owned
            
            Manufacturing
      and distributionRosarito,
      Mexico
            
            108,200
            
            
            Leased
            
            ManufacturingReynosa,
      Mexico
            
            126,800
            
            
            Owned
            
            IdleRaleigh,
      N. Carolina, USA
            
            69,800
            
            
            Leased
            
            Manufacturing
      and distributionJacksonville,
      Florida, USA
            
            18,000
            
            
            Leased
            
            Sales
      and marketingShanghai,
      China
            
            650
            
            
            Leased
            
            Sales
      and sourcingOffice ProductsWabash,
      Indiana, USA
            
            141,000
            
            
            Owned
            
            Manufacturing
      and distribution; sales and marketing; administrationSanford,
      N. Carolina, USA
            
            2,100
            
            
            Leased
            
            Sales
      and marketingMarkdorf,
      Germany
            
            70,300
            
            
            Owned
            
            Manufacturing
      and distribution; sales and marketing; administrationParis,
      France
            
            1,335
            
            
            Leased
            
            Distribution;
      sales and marketingCrawley,
      UK
            
            8,300
            
            
            Leased
            
            Sales
      and marketingBarcelona,
      Spain
            
            8,600
            
            
            Leased
            
            Distribution;
      sales and marketingJohannesburg,
      South Africa
            
            4,800
            
            
            Leased
            
            Distribution;
      sales and marketingSollentuna,
      Sweden
            
            1,400
            
            
            Leased
            
            Sales
      officeBeijing,
      China
            
            1,400
            
            
            Leased
            
            Sales
      office




At the
end of 2009, the Company has one idle facility. The Company completed the
consolidation of the Mexican production facilities into the Rosarito, Mexico
location in February 2009. The Reynosa facility is on the market to be sold;
however, it has been classified as held for use in the Company’s financial
statements. The Company believes that its facilities are in satisfactory and
suitable condition for their respective operations. The Company also believes
that it is in compliance with all applicable environmental regulations and is
not subject to any proceeding by any federal, state or local authorities
regarding such matters. The Company provides regular maintenance and service on
its plants and machinery as required.




ITEM 3 — LEGAL PROCEEDINGS


The
Company is involved in litigation arising in the normal course of its business,
but the Company does not believe that the disposition or ultimate resolution of
such claims or lawsuits will have a material adverse affect on the business or
financial condition of the Company.




The
Company is not aware of any probable or levied penalties against the Company
relating to the American Jobs Creation Act.




ITEM 4 — [RESERVED]


14


Part II




ITEM 5 — MARKET FOR THE REGISTRANT’S COMMON EQUITY, RELATED
STOCKHOLDER MATTERS AND ISSUER REPURCHASES OF SECURITIES




The
Company’s common stock is traded under the symbol “ESCA” on the NASDAQ Global
Market. The following table sets forth, for the calendar periods indicated, the
high and low sales prices of the Common Stock as reported by the NASDAQ Global
Market:




Prices
            
            High
            
            
            Low2009Fourth
      quarter ended December 26, 2009
            
            $
            3.07
            
            
            $
            1.96Third
      quarter ended October 3, 2009
            
            
            3.44
            
            
            
            0.72Second
      quarter ended July 11, 2009
            
            
            1.48
            
            
            
            0.43First
      quarter ended March 21, 2009
            
            
            1.15
            
            
            
            0.302008Fourth
      quarter ended December 27, 2008
            
            $
            2.54
            
            
            $
            0.48Third
      quarter ended October 4, 2008
            
            
            5.40
            
            
            
            2.51Second
      quarter ended July 12, 2008
            
            
            9.14
            
            
            
            4.80First
      quarter ended March 22, 2008
            
            
            9.39
            
            
            
            8.002007Fourth
      quarter ended December 29, 2007
            
            $
            9.90
            
            
            $
            8.78Third
      quarter ended October 6, 2007
            
            
            9.95
            
            
            
            8.06Second
      quarter ended July 14, 2007
            
            
            10.01
            
            
            
            8.85First
      quarter ended March 24, 2007
            
            
            10.78
            
            
            
            8.98




The
closing market price on February 11, 2010 was $2.70 per share.




Depending
on profitability and cash flows from operations, the Board of Directors issues
annual dividends. Based on the Company’s 2008 and 2009 performance, the Board
did not declare a dividend in 2009 and does not expect to declare a dividend in
2010. Dividends issued/declared during 2008 and 2007 are as
follows:




Record
      Date
            
            Payment
      Date
            
            Amount
      per Common ShareMarch
      9, 2007
            
            March
      16, 2007
            
            $
            0.22March
      14, 2008
            
            March
      21, 2008
            
            $
            0.25




There
were approximately 198 holders of record of the Company’s Common Stock at
February 11, 2010. The approximate number of stockholders, including those held
by depository companies for certain beneficial owners, was 937.


15


SHAREHOLDER
RETURN PERFORMANCE GRAPH




Set forth
below is a line graph comparing the yearly percentage change in the cumulative
total shareholder return on the Company’s common stock with that of the
cumulative total return on the NASDAQ US Stock Market Index and the NASDAQ
Non-Financial Stocks Index for the five year period ended December 26, 2009. The
following information is based on an investment of $100, on January 1, 2004, in
the Company’s common stock, the NASDAQ US Stock Market Index and the NASDAQ
Non-Financial Stocks Index, with dividends reinvested.




COMPARISON
OF FIVE YEAR CUMULATIVE TOTAL RETURN









2004
            
            2005
            
            2006
            
            2007
            
            2008
            
            2009Escalade
      Common Stock
            
            100
            
            
            89
            
            
            83
            
            
            72
            
            
            6
            
            
            20NASDAQ
      US Stock Index
            
            100
            
            
            102
            
            
            112
            
            
            122
            
            
            59
            
            
            84NASDAQ
      Non-Financial Stock Index
            
            100
            
            
            102
            
            
            112
            
            
            127
            
            
            58
            
            
            88




The above
performance graph does not constitute soliciting material and should not be
deemed filed or incorporated by reference into any other Company filing under
the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the
extent the Company specifically incorporates the performance graph by reference
therein.


16


ISSUER
PURCHASES OF EQUITY SECURITIES




Period
            
            
            (a)
      Total Number of Shares (or Units) Purchased
            
            
            (b)
      Average Price Paid per Share (or Unit)
            
            
            (c)
      Total Number of Shares (or Units) Purchased as Part of Publicly Announced
      Plans or Programs
            
            
            (d)
      Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May
      Yet Be Purchased Under the Plans or ProgramsShares
      purchases prior to 10/03/2009 under the current repurchase
      program.
            
            
            982,916
            
            
            $
            8.84
            
            
            
            982,916
            
            
            $
            2,273,939Fourth
      quarter purchases:10/04/2009
      – 10/31/2009
            
            None
            
            
            None
            
            
            None
            
            
            No
      Change11/01/2009
      – 11/28/2009
            
            None
            
            
            None
            
            
            None
            
            
            No
      Change11/29/2009
      – 12/26/2009
            
            None
            
            
            None
            
            
            None
            
            
            No
      ChangeTotal
      share purchases under the current program
            
            
            982,916
            
            
            $
            8.84
            
            
            
            982,916
            
            
            $
            2,273,939




The
Company has one stock repurchase program which was established in February 2003
by the Board of Directors and which initially authorized management to expend up
to $3,000,000 to repurchase shares on the open market as well as in private
negotiated transactions. In each of February 2005 and 2006, August 2007 and
February 2008 the Board of Directors increased the remaining balance on this
plan to its original level of $3,000,000. The repurchase plan has no termination
date and there have been no share repurchases that were not part of a publicly
announced program.


17


ITEM 6 — SELECTED FINANCIAL DATA


(In
thousands, except per share data)




At
      and For Years Ended
            
            December
      26, 2009
            
            
            December
      27, 2008
            
            
            December
      29, 2007
            
            
            December
      30, 2006
            
            
            December
      31, 2005Income
      Statement DataNet
      salesSporting
      goods
            
            $
            76,807
            
            
            $
            98,039
            
            
            $
            129,788
            
            
            $
            136,733
            
            
            $
            120,996Office
      products
            
            
            39,192
            
            
            
            50,647
            
            
            
            55,788
            
            
            
            54,732
            
            
            
            62,319Total
      net sales
            
            
            115,999
            
            
            
            148,686
            
            
            
            185,576
            
            
            
            191,465
            
            
            
            183,315Net
      income (loss)
            
            
            1,657
            
            
            
            (7,496
            )
            
            
            9,255
            
            
            
            8,495
            
            
            
            12,916Weighted-average
      shares
            
            
            12,632
            
            
            
            12,684
            
            
            
            12,901
            
            
            
            13,012
            
            
            
            13,055Per
      Share DataBasic
      earnings (loss) per share
            
            $
            0.13
            
            
            $
            (0.59
            )
            
            $
            0.72
            
            
            $
            0.65
            
            
            $
            0.99Cash
      dividends
            
            $
            —
            
            
            $
            0.25
            
            
            $
            0.22
            
            
            $
            0.20
            
            
            $
            0.15Balance
      Sheet DataWorking
      capital
            
            
            9,688
            
            
            
            4,842
            
            
            
            31,442
            
            
            
            33,125
            
            
            
            42,350Total
      assets
            
            
            127,238
            
            
            
            147,701
            
            
            
            152,016
            
            
            
            150,715
            
            
            
            124,860Short-term
      bank debt
            
            
            27,644
            
            
            
            46,525
            
            
            
            13,033
            
            
            
            10,336
            
            
            
            1,066Long-term
      bank debt
            
            
            —
            
            
            
            —
            
            
            
            19,135
            
            
            
            22,609
            
            
            
            18,487Total
      stockholders’ equity
            
            
            82,764
            
            
            
            78,790
            
            
            
            91,742
            
            
            
            85,715
            
            
            
            76,623




Fiscal
year 2009 was positively impacted by significant cost reductions and
consolidation of certain manufacturing and distributions
facilities.




Fiscal
year 2008 was negatively impacted by loss of sales to Sears, a major sporting
goods retailer, impairment of certain long-lived assets and a general economic
downturn.




Fiscal
year 2007 was positively impacted by the sale of rights to license potential
future intellectual property.




Fiscal
year 2006 was adversely impacted by the completion of a plan to rationalize
certain products in the Office Products business.




Fiscal
year 2005 the rationalization of certain products lowered sales in the Office
Products business.




ITEM
7 — MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIALCONDITION
AND RESULTS OF OPERATIONS




The
following section should be read in conjunction with Item 1: Business; Item 1A:
Risk Factors; Item 6: Selected Financial Data; and Item 8: Financial Statements
and Supplementary Data.




Forward-Looking
Statements




This
report contains forward-looking statements relating to present or future trends
or factors that are subject to risks and uncertainties. These risks include, but
are not limited to, the impact of competitive products and pricing, product
demand and market acceptance, new product development, the continuation and
development of key customer and supplier relationships, Escalade’s ability to
control costs, general economic conditions, fluctuation in operating results,
changes in the securities market, Escalade’s ability to obtain financing and to
maintain compliance with the terms of such financing and other risks detailed
from time to time in Escalade’s filings with the Securities and Exchange
Commission. Escalade’s future financial performance could differ materially from
the expectations of management contained herein. Escalade undertakes no
obligation to release revisions to these forward-looking statements after the
date of this report.


18


Overview




Escalade,
Incorporated (“Escalade” or “Company”) manufactures and distributes products for
two industries: Sporting Goods and Office Products. Within these industries the
Company has successfully built a market presence in niche markets. This strategy
is heavily dependent on expanding the customer base, barriers to entry, brand
recognition and excellent customer service. A key strategic advantage is the
Company’s established relationships with major customers that allow the Company
to bring new products to the market in a cost effective manner while maintaining
a diversified product line and wide customer base. In addition to strategic
customer relations, the Company has substantial manufacturing and import
experience that enable it to be a low cost supplier.




A
majority of the Company’s products are in markets that are currently
experiencing low growth rates. Where the Company enjoys a commanding market
position, such as table tennis tables in the Sporting Goods segment and paper
folding machines in the Office Products segment, revenue growth is expected to
be roughly equal to general growth/decline in the economy. However, in markets
that are fragmented and where the Company is not the dominant leader, such as
archery in the Sporting Goods segment and data security shredders in the Office
Products segment, the Company anticipates growth. To enhance internal growth,
the Company has a strategy of acquiring companies or product lines that
complement or expand the Company’s product lines. A key objective is the
acquisition of product lines with barriers to entry that the Company can take to
market through its established distribution channels or through new market
channels. Significant synergies are achieved through assimilation of acquired
product lines into the existing company structure. Management believes that key
indicators in measuring the success of this strategy are revenue growth,
earnings growth and the expansion of channels of distribution. The following
table sets forth the annual percentage change in revenues and net income (loss)
over the past three years:




2009
            
            
            2008
            
            
            2007Net
      revenueSporting
      Goods
            
            
            -21.7
            %
            
            
            -24.5
            %
            
            
            -5.1
            %Office
      Products
            
            
            -22.6
            %
            
            
            -9.2
            %
            
            
            1.9
            %Total
            
            
            -22.0
            %
            
            
            -19.9
            %
            
            
            -3.1
            %Net
      Income
            
            
            122.1
            %
            
            
            -181.0
            %
            
            
            9.0
            %




Results
of Operations




The
following schedule sets forth certain consolidated statement of income data as a
percentage of net revenue for the periods indicated:




2009
            
            
            2008
            
            
            2007Net
      revenue
            
            
            100.0
            %
            
            
            100.0
            %
            
            
            100.0
            %Cost
      of products sold
            
            
            70.9
            %
            
            
            75.4
            %
            
            
            70.8
            %Gross
      margin
            
            
            29.1
            %
            
            
            24.6
            %
            
            
            29.2
            %Selling,
      administrative and general expenses
            
            
            25.4
            %
            
            
            26.8
            %
            
            
            20.8
            %Impairment
      of assets
            
            
            0.0
            %
            
            
            1.8
            %
            
            
            0.0
            %Amortization
            
            
            2.0
            %
            
            
            1.5
            %
            
            
            1.4
            %Operating
      income (loss)
            
            
            1.7
            %
            
            
            -5.5
            %
            
            
            7.0
            %




Consolidated
Revenue and Gross Margin




Continued
sales declines to mass market retail customers in the Sporting Goods business
resulted in an overall decline of 21.7% in consolidated net revenues for 2009
compared to 2008. Declines in the specialty retail and dealer channels were
similar to declines in the mass market retail customers. Revenues from the
Office Products business decreased 22.6% in 2009 compared to 2008. Approximately
1% of the decline is due to changes in foreign exchange rates. The remaining
decline is a result of general economic conditions and tightening of credit
availability which has slowed customer spending.


19


The
overall gross margin in 2009 increased in the Sporting Goods business in
comparison to 2008 due to a combination of factors. Gross margin percentage for
2009 was 22.9% compared to 14.6% for 2008. The Company initiated various cost
reduction measures in 2008 including the consolidation of the Company’s Mexican
operations into one facility. This consolidation was completed in February 2009
and resulted in a reduction of the unfavorable manufacturing variances
experienced in 2008. The overall gross margin in 2009 decreased in the Office
Products business in comparison to 2008 to 41.3% compared to 43.8% in 2008 as a
result of lower sales volume which generated under absorbed factory
variances.




Consolidated
Selling, General and Administrative Expenses




Consolidated
selling, general and administrative expenses (“SG&A”) were $29.5 million in
2009 compared to $39.9 million in 2008, a decrease of $10.4 million or 26%. In
2008 and 2009, the Company implemented many costs saving initiatives including
the reduction of staff by approximately 20%, the voluntary reduction of officer
and director salaries by 10% and other cost saving initiatives from which the
effect was realized in 2009.




Other
Income




Other
income increased in 2009 compared to 2008. In 2008, the Company realized a loss
on the sale of third-party equity securities and recognized impairment on
remaining securities which combined totaled approximately $1.4 million. In 2009,
the Company sold its remaining equity securities and recognized approximately
$0.4 million gain; a partial recovery of the previously recorded impairment.
Income from equity investments increased approximately $0.5 to $1.6 million in
2009 compared with 2008.




Provision
for Income Taxes




The
effective income tax rate in 2009 was lower relative to 2008 primarily due to a
reduced tax benefit in 2008 resulting from state net operating losses generated
in 2008 for which the Company does not expect to be able to utilize. . The
effective tax rate for 2009 was 36.4% compared to (26.4%) and 34.9% in 2008 and
2007 respectively. The Company expects its future effective tax rates to
approximate the effective tax rate achieved in 2009.




Sporting
Goods




Net
sales, operating income (loss), and net income (loss) for the Sporting Goods
business segment for the three years ended December 26, 2009 were as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Net
      Revenue
            
            $
            76,807
            
            
            $
            98,039
            
            
            $
            129,788Operating
      income (loss)
            
            
            4,610
            
            
            
            (6,250
            )
            
            
            7,745Net
      income (loss)
            
            
            1,273
            
            
            
            (5,428
            )
            
            
            5,341




Net
revenue declined 21.7% in 2009 compared to 2008. Sales to the Company’s mass
market retail customers declined roughly 22% in 2009 compared to 2008 and
reflect the same two factors as in the previous year; a general slowdown in the
US economy which is adversely affecting mass retailers in general and a
continued industry wide decline in consumer demand for game tables. The Company
continues to aggressively pursue opportunities with its mass market retail
customers, but 2010 sales to this channel are expected to be comparable to 2009.
To improve this trend, the Company continues to pursue a strategy of expanding
certain product offerings and distribution through specialty retailers and
dealers. Sales to these channels now comprise 46% of total revenues compared to
45% and 38% for 2008 and 2007, respectively. Anticipated sales in the specialty
retail and distributor channels are expected to remain relatively stable in
2010. Consequently, the Company anticipates total 2010 sales for the Sporting
Goods segment to be comparable to 2009.


20


Sales in
2008 were lower than 2007 due primarily to a reduction in sales to the
Sears.




The gross
margin ratio in 2009 increased 56.9% compared to 2008 due to aggressive cost
reduction measures and facility consolidation. As a result, operating income as
a percentage of net revenue increased to 6.0% in 2009 compared to a loss of 6.4%
in 2008. Management anticipates operating income to slightly increase in 2010 as
2009 personnel reductions and facility consolidations are fully
realized.




Net
income for 2009 increased from 2008 due primarily to realization of cost cutting
measures and improved gross margins and the nonrecurring impact of the Company’s
long-lived asset impairment adjustments in 2008.




Office
Products




Net
sales, operating income, and net income for the Office Products business segment
for the three years ended December 26, 2009 were as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Net
      Sales
            
            $
            39,192
            
            
            $
            50,647
            
            
            $
            55,788Operating
      income
            
            
            1,780
            
            
            
            3,930
            
            
            
            8,809Net
      income
            
            
            1,077
            
            
            
            1,835
            
            
            
            5,617




Sales in
the Office Products business decreased 22.6% in 2009 compared to 2008 primarily
due to the worsening of the U.S. economy and economic problems in Southern
Europe and Russian countries. Management anticipates a return of revenues from
office product retailers as the economy stabilizes. The Company has widened its
product range and offered new product launches to improve its
opportunities.




Excluding
the effect of changing foreign exchange rates, 2008 sales were down 9.2% from
2007.




Profitability
in the Office Products segment decreased in 2009 as evidenced by the ratio of
operating income to net sales which decreased to 4.6% in 2009 compared with 7.8%
in 2008. The primary reasons for this decline in profitability are under
absorbed factory variances due to low sales and changes in product mix, an
increasingly competitive environment, and foreign exchange rate fluctuations.
Management anticipates operating income to increase in 2010 due to a broadening
of the product portfolio and full year realization of 2009 personnel reductions
and cost cutting measures.




Financial
Condition and Liquidity




The
current ratio, a basic measure of liquidity (current assets divided by current
liabilities), increased to 1.2 times in 2009 from 1.1 times in 2008. Total
accounts receivable at the end of 2009 are down as a direct result of lower
sales volume. Inventories are down at the end of 2009 as a result of a lower
sales volume, but more directly due to increased inventory management
efforts.




The
Company’s generation of cash was principally a result of increased profits
resulting from cost reduction measures implemented by management, a reduction in
accounts receivable and inventory and realization of income tax receivables
generated by 2008 loss carrybacks. The Company paid no dividend in 2009. The
Company also received $1.6 million in net proceeds from the sale of third-party
equity securities. The result of these factors allowed the Company to reduce
borrowings at year end by $18.9 million which lowered total bank debt as a
percent of stockholders equity from 59% in 2008 to 33% in 2009.




In 2010,
the Company expects capital expenditures to be approximately $2.0 million unless
the Company resumes implementation of an integrated information system, which
would require additional capital expenditures. The costs and timing of resuming
this project is currently being evaluated. Should the Company decide to abandon
the Oracle system, the remaining book value of the Oracle system of
approximately $5.9 million ($3.9 million, net of tax) would be expensed over the
estimated remaining economic life of the system.


21


The
Company’s working capital requirements are primarily funded through cash flows
from operations and revolving credit agreements with its bank. During 2009, the
Company’s maximum borrowings under its primary revolving credit lines totaled
$48.8 compared to $54.8 million in 2008. Notes payable as of the end of fiscal
2009 was at $27.6 million compared with $46.5 million at the end of fiscal 2008.
The overall effective interest rate in 2009 was 4.4% which was slightly higher
than the effective rate of 4.1% in 2008. As discussed in Part I, Item 1A – Risk
Factors, the Company’s Credit Agreement with JPMorgan Chase Bank, N.A. matures
as of May 31, 2010 and the Company has begun discussion with its lender to
extend this Agreement.




The
Company has a long standing relationship with its lender and has met all
financial covenants under the new agreement which was effective April 30, 2009.
The Company has taken significant actions to preserve cash, increase liquidity
and position it to operate in very difficult economic conditions. Specifically,
the Company has consolidated three manufacturing plants into one thus
eliminating the burdens of excess capacity that negatively affected 2008. It has
increased prices, reduced head counts, reduced officer and director salaries,
and implemented other overall expense savings. As a result, the Company lowered
its bank debt in 2009 by approximately $19 million. The Company operates in an
industry which has been adversely affected by the current economic
conditions.




The
Company expects its sales levels for fiscal year 2010 to be similar to or
slightly above those experienced in 2009. The Company believes that cash
generated from its projected 2010 operations, the potential sale of its Reynosa
facility, additional income tax refunds and the commitment of borrowings from
its primary lender will provide it with sufficient cash flows for its
operations.




It is
possible that if the current economic conditions continue to deteriorate, this
could have further adverse effects on the Company’s ability to operate
profitably during fiscal year 2010. To the extent that occurs, management
intends to continue to make cost reductions and to continue realigning its
infrastructure in an effort to match the Company’s overhead and cost structure
with the sales level dictated by current market conditions. Although not
currently planned, realization of assets in other than the ordinary course of
business in order to meet liquidity needs could incur losses not reflected in
these financial statements.




New
Accounting Pronouncements




Refer to
Note 1 to the consolidated financial statements under the sub-heading “New
Accounting Pronouncements” beginning on page 42.




Off
Balance Sheet Financing Arrangements




The
Company has no financing arrangements that are not recorded on the Company’s
balance sheet.




Contractual
Obligations




The
following schedule summarizes the Company’s contractual obligations as of
December 26, 2009:




Amounts
      in thousands
              
              Payments
      Due by PeriodContractual
      Obligations
              
              Total
              
              
              Less
      than 1 year
              
              
              1 –
      3 years
              
              
              3 –
      5 years
              
              
              More
      than 5 yearsDebt
              
              $
              27,644
              
              
              $
              27,644
              
              
              $
              —
              
              
              $
              —
              
              
              $
              —Future
      interest payments (1)
              
              
              1,839
              
              
              
              1,839
              
              
              
              —
              
              
              
              —
              
              
              
              —Operating
      Leases
              
              
              1,851
              
              
              
              1,068
              
              
              
              711
              
              
              
              72
              
              
              
              —Minimum
      payments under royalty and license agreements
              
              
              1,875
              
              
              
              350
              
              
              
              800
              
              
              
              725
              
              
              
              —Total
              
              $
              33,274
              
              
              $
              30,966
              
              
              $
              1,511
              
              
              $
              797
              
              
              $
              —




Notes:


(1)
Assumes that the Company will not increase borrowings under its long-term credit
agreements and that the effective interest rate experienced in 2009 of 4.4% will
continue for the life of the agreements.


22


Critical
Accounting Estimates




The
methods, estimates and judgments used in applying the Company’s accounting
policies have a significant impact on the results reported in its financial
statements. Some of these accounting policies require difficult and subjective
judgments, often as a result of the need to make estimates of matters that are
inherently uncertain. The most critical accounting estimates are described below
and in the Notes to the Consolidated Financial Statements.




Product
Warranty


The
Company provides limited warranties on certain of its products, for varying
periods. Generally, the warranty periods range from 90 days to one year.
However, some products carry extended warranties of seven-year, ten-year, and
lifetime warranties. The Company records an accrued liability and expense for
estimated future warranty claims based upon historical experience and
management’s estimate of the level of future claims. Changes in the estimated
amounts recognized in prior years are recorded as an adjustment to the accrued
liability and expensed in the current year. To the extent there are product
defects in current products that are unknown to management and do not fall
within historical defect rates, the product warranty reserve could be
understated and the Company could be required to accrue additional product
warranty costs thus negatively affecting gross margin.




Inventory
Valuation Reserves


The
Company evaluates inventory for obsolescence and excess quantities based on
demand forecasts over specified time frames, usually one year. The demand
forecast is based on historical usage, sales forecasts and current as well as
anticipated market conditions. All amounts in excess of the demand forecast are
deemed to be potentially excess or obsolete and a reserve is established based
on the anticipated net realizable value. To the extent that demand forecasts are
greater than actual demand and the Company fails to reduce manufacturing output
accordingly, the Company could be required to record additional inventory
reserves which would have a negative impact on gross margin.




Allowance
for Doubtful Accounts


The
Company provides an allowance for doubtful accounts based upon a review of
outstanding receivables, historical collection information and existing economic
conditions. Accounts receivable are ordinarily due between 30 and 60 days after
the issuance of the invoice. Accounts are considered delinquent when more than
90 days past due. Delinquent receivables are reserved or written off based on
individual credit evaluation and specific circumstances of the customer. To the
extent that actual bad debt losses exceed the allowance recorded by the Company,
additional reserves would be required which would increase selling, general and
administrative costs.




Advertising
Subsidies


The
Company enters agreements with certain retailers to pay for direct advertising
programs and/or provide in-store display units. These agreements are not based
on retailer purchase volumes and do not obligate the retailer to continue
carrying the Company’s products in future years. The Company determines the
value of the advertising services based on its own research and history of
providing such services. The Company expenses these costs in the period in which
they are incurred as a selling expense.




CO-OP
Advertising


The
Company offers co-operative advertising allowances to certain retailers to
encourage product promotions. These agreements are typically based on a
percentage of retailer purchases up to a maximum allowance and the Company is
never directly involved with the media provider. The Company accrues the
estimated cost of these programs based on the sales volume of the retailer and
historical trends. As costs are accrued they are recorded as a reduction in
sales. To the extent that actual co-operative advertising costs exceed the
Company’s estimates, additional co-operative advertising allowances would be
required which would reduce net revenues.


23


Volume
Rebates


The
Company has various rebate programs with certain retailers that are based on
purchase volume. Typically these programs are based on achieving specified sales
volumes and the rebate is calculated as a percentage of purchases. Based on the
terms of the agreement, purchase levels and historical trends the Company
accrues the estimated cost of these programs and records the same as a reduction
in sales. To the extent that actual rebate program costs exceed the Company’s
estimates, additional rebate program allowances would be required which would
reduce net revenues.




Catalog
Allowances


A number
of large office supply dealers operate through catalogs distributed to
businesses globally. Product content is decided by the dealer each time a new
catalog is issued; typically once a year. Catalog allowances are required by the
dealer as an inducement to include the Company’s products. The allowance is
based on a fixed cost per page and/or a percentage of purchases by the dealer.
The fixed portion of the allowance is often paid when the catalog is distributed
and is recognized when incurred and the variable portion is accrued based on
dealer purchases and historical trends. Catalog allowances are recorded as a
reduction in sales. To the extent that actual catalog costs exceed the estimated
costs associated with variable agreement provisions, additional catalog
allowances would be required which would negatively impact net
revenues.




Impairment
of Goodwill


The
Company annually tests as of the last day of its fiscal year for impairment of
goodwill in accordance with guidance in FASB ASC 805, Business Combinations.
With the assistance of an external valuation specialist, management determined
the assumptions and inputs utilized in the evaluation of the fair value of the
Company’s three separate reporting units, discussed below. The first phase of
the goodwill impairment test requires that the fair value of the applicable
reporting unit be compared with its recorded value. The Company establishes fair
value by using a combination of a market approach and an income approach. The
market approach uses the guideline-companies method to estimate the fair value
of a reporting unit based on reported sales of publicly-held entities engaged in
the same or a similar business as the reporting unit. The income approach uses
the discounted cash flow method to estimate the fair value of a reporting unit
by calculating the present value of the expected future cash flows of the
reporting unit. The discount rate is based on a weighted average cost of capital
determined using publicly-available interest rate information on the valuation
date and data regarding equity, size and country-specific risk
premiums/decrements compiled and published by a commercial source. The Company
uses assumptions about expected future operating performance in determining
estimates of those cash flows, which may differ from actual cash flows. The
market approach is weighted 25% and the income approach is weighted 75% to
arrive at the final fair value determination. The methodology used in 2009 is
consistent with that used previously.




If the
recorded value of net assets of a reporting unit is less than the determined
fair value, management performs a phase-two analysis that allocates the fair
value of the reporting unit calculated in phase one to the specific tangible and
intangible assets and liabilities of the reporting unit and results in an
implied fair value of goodwill. Goodwill is reduced by any shortfall of implied
goodwill to its current carrying value.




The
Company has three reporting units that require separate goodwill impairment
analysis. Those reporting units are Escalade Sports, Martin Yale North America
and Martin Yale Europe. Significant assumptions and inputs used in each of the
reporting units goodwill impairment testing are as follows:




Escalade
Sports – The discount rate used in the 2009 discounted cash flow calculation was
13.0% compared to 11.5% for 2008. Projected revenues and costs for 2010 and
beyond reflected the Company’s best view of the current global economic
situation, demand for existing products, the status of new products and product
improvements, and the projected cost of raw materials and manufacturing that are
deemed material in projecting future outcomes.


24


Martin
Yale North America – The discount rate used in the 2009 discounted cash flow
calculation was 12% compared to 10% for 2008. Projected revenues and costs for
2010 and beyond reflected the Company’s best view of the current global economic
situation, demand for existing products, the status of new products and product
improvements, and the projected cost of raw materials and manufacturing that are
deemed material in projecting future outcomes.




Martin
Yale Europe – The discount rate used in the 2009 discounted cash flow
calculation was 11% compared to 10% for 2008. Projected revenues and costs for
2010 and beyond reflected the Company’s best view of the current global economic
situation, demand for existing products, the status of new products and product
improvements, and the projected cost of raw materials and manufacturing that are
deemed material in projecting future outcomes.




The
Company’s testing determined that goodwill of each reporting unit was not
impaired. Of the total recorded goodwill of $26,215 at December 26, 2009,
$12,017 was allocated to the Escalade Sports reporting unit; $4,888 was
allocated to the Martin Yale North America reporting unit; and $9,310 was
allocated to the Martin Yale Europe reporting unit. Based on the results of the
impairment tests, the fair value of reporting unit invested capital exceeded the
carrying value of reporting unit invested capital by approximately 150%, 22%,
and 14% for the Escalade Sports, Martin Yale North America and Martin Yale
Europe reporting units, respectively, as of December 26, 2009. Continued
protracted declines in future cash flows as well as adverse economic conditions
could have a negative effect on fair value of each reporting unit.




At
December 26, 2009 and December 27, 2008, the market capitalization of the
Company was approximately 35% and 9% of the carrying amount of its equity,
respectively. Management believes that the market capitalization is not a good
approximation of the fair value of the Company because (1) the stock is thinly
traded, (2) almost half of the outstanding stock is held by officers, directors,
and their affiliates and experiences very little trading activity, and (3) the
stocks of companies in the industries in which the Company operates have been
priced at highly depressed levels for more than two years as a result of the
prolonged economic downturn.




Long
Lived Assets


The
company evaluates the recoverability of certain long-lived assets whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Estimates of future cash flows used to test recoverability of
long-lived assets include separately identifiable undiscounted cash flows
expected to arise from the use and eventual disposition of the assets. Where
estimated future cash flows are less than the carrying value of the assets,
impairment losses are recognized based on the amount by which the carrying value
exceeds the fair value of the assets. The fair value of certain assets was
determined based on the “held for use” classification at year end. The Company
may incur additional impairment charges or losses on divestitures of these
assets being classified as “held for use.”




During
2008, the Company made the decision to consolidate Mexican operations into its
Rosarito, Mexico facility. Production at the Reynosa, Mexico facility ceased at
the end of February 2009. During 2008, the Company’s Sporting Goods segment
recognized an impairment loss of $2.6 million and classified this asset as “held
for sale.” Since the Company was unable to execute a sale of this facility
within twelve months, as of December 26, 2009, the cost of the facility has been
re-classified as “held for use” and the Company has resumed depreciating the
facility costs although the Reynosa facility is currently on the market to be
sold.




Equity
Method Investments


The
Company has minority equity positions in companies strategically related to the
Company’s business, but does not have control over these companies. The
accounting method employed is dependent on the level of ownership and degree of
influence the Company can exert on operations. Where the equity interest is less
than 20% and the degree of influence is not significant, the cost method of
accounting is employed. Where the equity interest is greater than 20% but not
more than 50%, the equity method of accounting is utilized. Under the equity
method, the Company’s proportionate share of net income (loss) is recorded in
other income on the consolidated statements of operations. The proportionate
share of net income was $1,598 thousand, $1,054 thousand and $1,354 thousand in
2009, 2008 and 2007, respectively. Total cash dividends received from these
equity investments amounted to $32 thousand, $49 thousand, and $39 thousand in
2009, 2008 and 2007, respectively. The Company considers whether the fair values
of any of its equity investments have declined below their carrying value
whenever adverse events or changes in circumstances indicate that recorded
values may not be recoverable. If the Company considers any such decline to be
other than temporary (based on various factors, including historical financial
results, product development activities and overall health of the investments’
industry), a write-down is recorded to estimated fair value. The Company
believes that there were no adverse events or changes in circumstances that
would indicate a decline in carrying value; therefore, the Company determined
that no impairment was indicated for the year ended December 26,
2009.


25


Effect
of Inflation




The
Company cannot accurately determine the precise effects of inflation. The
Company attempts to pass on increased costs and expenses through price increases
when necessary. The Company is working on reducing expenses; improving
manufacturing technologies; and redesigning products to keep these costs under
control.




Capital
Expenditures




As of
December 26, 2009, the Company had no material commitments for capital
expenditures. However, in the first quarter of 2008, the Company initiated a
project to implement a global integrated information system. In 2008, the
Company spent $6.6 million related to this project. The Company went live with
the install at its North American Office Products business entity and one
division of the Sporting Goods business entity. During 2009, the Company spent
an additional $0.8 million relative to the install at each of these entities. At
this point, the Company has suspended further implementation until it has had
sufficient time to evaluate the results of what has been installed. If the
decision is made to recommence the install schedule, the Company believes it
will need to spend an additional $2.0 million to complete the hardware and
software system integration. Should the Company decide to abandon the Oracle
system, the remaining book value of the Oracle system of approximately $5.9
million ($3.9 million, net of tax) would be expensed over the estimated
remaining economic life of the system.




ITEM 7A — QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET
RISK




The
Company is exposed to financial market risks, including changes in currency
exchange rates, interest rates and marketable equity security prices. The
Company attempts to minimize these risks through regular operating and financing
activities and, when considered appropriate, through the use of derivative
financial instruments. During fiscal 2009, there were no derivates in use. The
Company does not purchase, hold or sell derivative financial instruments for
trading or speculative purposes.




Interest
Rates


The
Company’s exposure to market-rate risk for changes in interest rates relates
primarily to its revolving variable rate bank debt which is based on both LIBOR
and EURIBOR interest rates. A hypothetical 1% or 100 basis point change in
interest rates would not have a significant effect on our consolidated financial
position or results of operation.




Foreign
Currency


The
Company conducts business in various countries around the world and is therefore
subject to risks associated with fluctuating foreign exchange rates.
Approximately 18% of consolidated revenue is derived from sales outside of the
U.S. This revenue is generated from the operations of the Company’s subsidiaries
in their respective countries and surrounding geographic areas and is primarily
denominated in each subsidiary’s local functional currency. These subsidiaries
incur most of their expenses (other than inter-company expenses) in their local
functional currency and include the Euro, Great Britain Pound Sterling, South
Africa Rand, Swedish Krona, Mexican Peso and Chinese Yuan.




The
geographic areas outside the United States in which the Company operates are
generally not considered to be highly inflationary. Nonetheless, the Company’s
foreign operations are sensitive to fluctuations in currency exchange rates
arising from, among other things, certain inter-company transactions that are
denominated in currencies other than the respective functional currency.
Operating results as well as assets and liabilities are also subject to the
effect of foreign currency translation when the operating results, assets and
liabilities of our foreign subsidiaries are translated into U.S. dollars in our
consolidated financial statements. The unrealized effect of foreign currency
translation in 2009 resulted in a $1.6 million gain that
was recorded in stockholders’ equity as other comprehensive income, compared to
a $2.3 million loss that was recorded in stockholders’ equity as other
comprehensive income (loss) in 2008 and a $2.3 million gain in 2007. At December
26, 2009, a hypothetical change of 10% in foreign currency exchange rates would
cause a $3.2 million change to stockholders’ equity on our consolidated balance
sheet and a $60,000 change to net income in our consolidated statement of
operations.






26


ITEM 8 — FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA




The
financial statements and supplementary data required by Item 8 are set forth in
Part IV, Item 15.




ITEM 9 — CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE





None.




ITEM 9A(T)  — CONTROLS AND PROCEDURES




Evaluation
of Disclosure Controls and Procedures




Escalade
maintains disclosure controls and procedures that are designed to ensure that
information required to be disclosed in the Company’s Exchange Act reports is
recorded, processed, summarized and reported within the time periods specified
in the SEC’s rules and forms, and that such information is accumulated and
communicated to the Company’s management, including its Chief Executive Officer
and Chief Financial Officer, as appropriate, to allow timely decisions regarding
required disclosure based closely on the definition of “disclosure controls and
procedures” in Rule 13a-14(c). In designing and evaluating the disclosure
controls and procedures, management recognized that any controls and procedures,
no matter how well designed and operated, can provide only reasonable assurance
of achieving the desired control objectives, and management necessarily was
required to apply its judgment in evaluating the cost-benefit relationship of
possible controls and procedures. Also, the Company has investments in certain
unconsolidated entities. As the Company does not control or manage these
entities, its disclosure controls and procedures with respect to such entities
are necessarily substantially more limited than those it maintains with respect
to its consolidated subsidiaries.




The
Company carried out an evaluation, under the supervision and with the
participation of the Company’s management, including the Company’s Chief
Executive Officer and Chief Financial Officer, of the effectiveness of the
design and operation of the Company’s disclosure controls and procedures as of
the end of the period covered by this report. Based on the foregoing, the
Company’s Chief Executive Officer and Chief Financial Officer concluded that the
Company’s disclosure controls and procedures were effective.




Management’s
Report on Internal Control over Financial Reporting




Escalade’s
management is responsible for establishing and maintaining adequate internal
control over financial reporting for the Company. Escalade’s internal control
system was designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles. Internal
control over financial reporting of the Company includes those policies and
procedures that:




(1)
pertain to the maintenance of records that in reasonable detail accurately and
fairly reflect the transactions of the Company;




(2)
provide reasonable assurance that transactions are recorded as necessary to
permit preparation of financial statements in accordance with generally accepted
accounting principles, and that receipts and expenditures of the Company are
being made only in accordance with authorizations of management and directors of
the Company; and




(3)
provide reasonable assurance regarding prevention or timely detection of
unauthorized acquisition, use or disposition of the Company’s assets that could
have a material effect on the Company’s financial statements.


27


All
internal control systems, no matter how well designed, have inherent
limitations, including the possibility of human error or circumvention through
collusion or improper overriding of controls. Therefore, even those internal
control systems determined to be effective can provide only reasonable assurance
with respect to financial statement preparation. Further, because of changes in
conditions, the effectiveness of internal control may vary over
time.




The
management of Escalade assessed the effectiveness of the Company’s internal
control over financial reporting as of December 26, 2009. In making its
assessment of internal control over financial reporting, management used the
criteria set forth by the Committee of Sponsoring Organizations of the Treadway
Commission (COSO) in Internal
Control – Integrated Framework and implemented a process to monitor and
assess both the design and operating effectiveness of the Company’s internal
controls. Based on this assessment, management believes that, as of December 26,
2009, the Company’s internal control over financial reporting was
effective.




This
annual report on Form 10-K does not include an attestation report of the
Company’s registered public accounting firm regarding internal control over
financial reporting. Management’s report regarding internal control over
financial reporting was not subject to attestation by the Company’s registered
public accounting firm pursuant to temporary rules of the Securities and
Exchange Commission that permit the Company to provide only management’s report
in this annual report on Form 10-K. In addition, this report by management
regarding internal control over financial reporting is specifically not
incorporated by reference into this annual report on Form 10-K or into any other
filing by the Company under the Securities Act of 1933, as amended, or the
Securities Exchange Act of 1934, as amended.






/s/ Robert J. Keller, Chief
      Executive Officer
            
            /s/ Deborah J. Meinert, Chief
      Financial Officer





Changes
in Internal Control over Financial Reporting




Management
of the Company has evaluated, with the participation of the Company’s Chief
Executive Officer and Chief Financial Officer, changes in the Company’s internal
controls over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f) of
the Exchange Act) during the fourth quarter of 2009. In connection with such
evaluation, there have been no changes to the Company’s internal control over
financial reporting that occurred since the beginning of the Company’s fourth
quarter of 2009 that have materially affected, or are reasonably likely to
materially affect, the Company’s internal control over financial
reporting.




ITEM 9B — OTHER INFORMATION





None.


28


Part III




ITEM 10 — DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE
GOVERNANCE




Information
required under this item with respect to Directors and Executive Officers is
contained in the registrant’s Proxy Statement relating to its annual meeting of
stockholders scheduled to be held on April 30, 2010 under the captions “Certain
Beneficial Owners,” “Election of Directors,” “Executive Officers of the
Registrant,” “Board of Directors, Its Committees, Meetings and Functions,” and
“Beneficial Ownership Reporting Compliance” and is incorporated herein by
reference.




ITEM 11 — EXECUTIVE COMPENSATION




Information
required under this item is contained in the registrant’s Proxy Statement
relating to its annual meeting of stockholders scheduled to be held on April 30,
2010 under the captions “Compensation Discussion and Analysis,” “Compensation
Committee Interlocks and Insider Participation,” “Compensation Committee Report”
and “Executive Compensation” and is incorporated herein by reference, except
that the information required by Item 407(e)(5) of Regulation S-K which appears
under the caption “Report of Compensation Committee” is specifically not
incorporated by reference into this Form 10-K or into any other filing by the
registrant under the Securities Act of 1933 or the Securities Exchange Act of
1934.




ITEM 12 — SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED STOCKHOLDER MATTERS




Except
for the information required by Item 201(d) of Regulation S-K, which is included
below, information required by this item is contained in the registrant’s proxy
statement relating to its annual meeting of stockholders scheduled to be held on
April 30, 2010 under the captions “Certain Beneficial Owners” and “Election of
Directors” and is incorporated herein by reference.




Equity
Compensation Plan Information




Plan
      Category
            
            Number
      of
              Securities
      to be Issued Upon Exercise of Outstanding Options, Warrants and
      Rights
            
            
            Weighted-Average
      Exercise Priceof
      Outstanding Options, Warrantsand
      Rights
            
            
            Number
      of
              Securities
      Remaining
              Available
      for Future IssuanceEquity
      compensation plans approved by security holders (1)
            
            
            842,600
            
            
            $
            3.45
            
            
            
            1,123,034Equity
      compensation plans not approved by security holders
            
            
            —
            
            
            
            —
            
            
            
            —Total
            
            
            842,600
            
            
            
            
            
            
            
            1,123,034




(1) These
plans include the Company’s 1997 Incentive Stock Option Plan, the 1997 Director
Stock Option Plan, the Escalade, Incorporated 2007 Incentive Plan and a special
grant of 10,000 options to Directors approved at the 2006 annual shareholders
meeting.




ITEM 13 — CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS




The
information required by Item 407(a) of Regulation S-K is contained in the
registrant’s proxy statement relating to its annual meeting of stockholders to
be held on April 30, 2010 under the captions “Election of Directors” and “Board
of Directors, Its Committees, Meetings and Functions” and is incorporated herein
by reference. The information required by Item 404 of Regulation S-K is:
None.


29


ITEM 14 — PRINCIPAL ACCOUNTING FEES AND SERVICES




The
information required by this item is contained in the registrant’s proxy
statement relating to its annual meeting of stockholders scheduled to be held on
April 30, 2010 under the caption “Principal Accounting Firm Fees” and is
incorporated herein by reference.




Part IV




ITEM 15 — EXHIBITS, FINANCIAL STATEMENT SCHEDULES




(A)
            Documents
      filed as a part of this report:  (1)
              Financial
      StatementsReport
      of Independent Registered Public Accounting FirmConsolidated
      financial statements of Escalade, Incorporated and
      subsidiaries:Consolidated
      balance sheets—December 26, 2009 and December 27, 2008Consolidated
      statements of operations—fiscal years ended December 26, 2009, December
      27, 2008, and December 29, 2007Consolidated
      statements of stockholders’ equity—fiscal years ended December 26, 2009,
      December 27, 2008, and December 29, 2007Consolidated
      statements of cash flows—fiscal years ended December 26,
      2009,  December 27, 2008, and December 29,
  2007Notes
      to consolidated financial statementsAll other schedules
      are omitted because of the absence of conditions under which they are
      required or because the required information is given in the consolidated
      financial statements or notes
thereto.




(3)
            Exhibits3.1
            Articles
      of incorporation of Escalade, Incorporated (a)3.2
            By-Laws
      of Escalade, Incorporated (a)4.1
            Form
      of Escalade, Incorporated’s common stock certificate
(a)10.1
            Licensing
      agreement between Sweden Table Tennis AB and Indian Industries, Inc. dated
      January 1, 1995 (c)10.2
            Credit
      Agreement dated as of April 30, 2009 among Escalade, Incorporated and
      JPMorgan Chase Bank, N.A. (without exhibits and schedules, which Escalade
      has determined are not material) (j)10.3
            Pledge
      and Security Agreement dated as of April 30, 2009 by and between Escalade,
      Incorporated and JPMorgan Chase Bank, N.A. (without exhibits and
      schedules, which Escalade has determined are not material)
    (j)10.4
            Form
      of Pledge and Security Agreement dated as of April 30, 2009 with JPMorgan
      Chase Bank, N.A. (j) (k)10.5
            Form
      of Unlimited Continuing Guaranty dated as of April 30, 2009 in favor of
      JPMorgan Chase Bank, N.A. (j) (k)10.6
            First
      Amendment dated as of July 29, 2009 to Credit Agreement by and between
      Escalade, Incorporated and JPMorgan Chase Bank, N.A.
(l)10.7
            Second
      Amendment dated as of September 30, 2009 to Credit Agreement by and
      between Escalade, Incorporated and JPMorgan Chase Bank, N.A.
      (m)10.8
            Third
      Amendment dated as of October 30, 2009 to Credit Agreement by and between
      Escalade, Incorporated and JPMorgan Chase Bank, N.A.
(n)10.9
            Loan
      Agreement dated September 1, 1998 between Martin Yale Industries, Inc. and
      City of Wabash, Indiana (e)10.10
            Trust
      Indenture between the City of Wabash, Indiana and Bank One Trust Company,
      NA as Trustee dated September 1, 1998 relating to the Adjustable Rate
      Economic Development Revenue Refunding Bonds, Series 1998 (Martin Yale
      Industries, Inc. Project) (e)10.11
            Fourth
      Amendment dated as of March 1, 2010 to Credit Agreement by and between
      Escalade, Incorporated and JPMorgan Chase Bank, N.A.
  (o)




30





(4)
            Executive
      Compensation Plans and Arrangements10.12
            The
      Harvard Sports/Indian Industries, Inc. 401(k) Plan as amended and merged
      in 1993 (b)10.13
            Martin
      Yale Industries, Inc. 401(k) Retirement Plan as amended in 1993
      (b)10.14
            Incentive
      Compensation Plan for Escalade, Incorporated and its subsidiaries
      (a)10.15
            Example
      of contributory deferred compensation agreement between Escalade,
      Incorporated and certain management employees allowing for deferral of
      compensation (a)10.16
            1997
      Director Stock Compensation and Option Plan (d)10.17
            1997
      Incentive Stock Option Plan (d)10.18
            1997
      Director Stock Compensation and Option Plan Certificate
  (f)10.19
            1997
      Incentive Stock Option Plan Certificate (f)10.20
            Escalade,
      Incorporated 2007 Incentive Plan, incorporated by reference herein from
      Annex 1 to the Registrant’s 2007 Definitive Proxy Statement.
      (g)10.21
            Employment
      offer letter dated July 23, 2007 between Robert Keller and Escalade, Inc.
      (h)10.22
            Form
      of Restricted Stock Unit Agreement utilized in Restricted Stock Unit
      grants pursuant to the Escalade Incorporated 2007 Incentive Plan.
      (i)10.23
            Escalade,
      Incorporated schedule of Directors Compensation10.24
            Escalade,
      Incorporated schedule of Executive Officers
Compensation10.25
            Form
      of Stock Option Award Agreement utilized in Stock Option grants to
      employees pursuant to the Escalade, Incorporated 2007 Incentive
      Plan10.26
            Form
      of Stock Option Award Agreement utilized in Stock Option grants to
      Directors pursuant to the Escalade, Incorporated 2007 Incentive
      Plan21
            Subsidiaries
      of the Registrant23.1
            Consent
      of BKD, LLP23.2
            Consent
      of FALK GmbH & Co KG31.1
            Chief
      Executive Officer Rule 13a-14(a)/15d-14(a)
Certification31.2
            Chief
      Financial Officer Rule 13a-14(a)/15d-14(a)
Certification32.1
            Chief
      Executive Officer Section 1350 Certification32.2
            Chief
      Financial Officer Section 1350
Certification  (a)
            Incorporated
      by reference from the Company’s 2007 First Quarter Report on Form
      10-Q(b)
            Incorporated
      by reference from the Company’s 1993 Annual Report on Form
      10-K(c)
            Incorporated
      by reference from the Company’s 1995 Annual Report on Form
      10-K(d)
            Incorporated
      by reference from the Company’s 1997 Proxy Statement(e)
            Incorporated
      by reference from the Company’s 1998 Third Quarter Report on Form
      10-Q(f)
            Incorporated
      by reference from the Company’s 2004 Annual Report on Form
      10-K(g)
            Incorporated
      by reference from the Company’s 2007 Second Quarter Report on Form
      10-Q(h)
            Incorporated
      by reference from the Company’s 2007 Third Quarter Report on Form
      10-Q(i)
            Incorporated
      by reference from the Company’s Form 8-K filed on February 29,
      2008(j)
            Incorporated
      by reference from the Company’s Form 8-K filed on May 6,
    2009(k)
            Each
      of Escalade’s eleven domestic subsidiaries has entered into the identical
      form of Pledge and Security Agreement and form of Unlimited Continuing
      Guaranty. Those eleven domestic subsidiaries are: Indian Industries, Inc.;
      Harvard Sports, Inc.; Martin Yale Industries, Inc.; U.S. Weight, Inc.;
      Bear Archery, Inc.; Escalade Sports Playground, Inc.; Schleicher & Co.
      America, Inc.; Olympia Business Systems, Inc.; EIM Company, Inc.; SOP
      Services, Inc.; and Escalade Insurance, Inc.(l)
            Incorporated
      by reference from the Company’s Form 8-K filed on July 30,
      2009(m)
            Incorporated
      by reference from the Company’s Form 8-K filed on September 30,
      2009(n)
            Incorporated
      by reference from the Company’s 2009 Third Quarter Report on Form
      10-Q(o)
            Incorporated
      by reference from the Company’s Form 8-K filed on March 2,
      2010




31


Escalade,
Incorporated and Subsidiaries




Index
to Financial Statements




The
following consolidated financial statements of the Registrant and its
subsidiaries and Independent Accountants’ Reports are submitted
herewith:




PageReports of Independent Registered Public Accounting
      Firms
            
            33Consolidated
      financial statements of Escalade, Incorporated and
      subsidiaries:Consolidated balance sheets—December 26, 2009 and December
      27, 2008
            
            35Consolidated statements of operations—fiscal years ended
      December 26, 2009, December 27, 2008 and December 29,
    2007
            
            36Consolidated statements of stockholders’ equity—fiscal years
      ended December 26, 2009, December 27, 2008 and December 29,
      2007
            
            37Consolidated statements of cash flows—fiscal years ended
      December 26, 2009, December 27, 2008 and December 29,
    2007
            
            38Notes to consolidated financial
statements
            
            39




32







Reports of Independent Registered Public Accounting
Firms




Audit
Committee, Board of Directors and Stockholders


Escalade,
Incorporated


Evansville,
Indiana




We have
audited the accompanying consolidated balance sheets of Escalade, Incorporated
(Company) as of December 26, 2009, and December 27, 2008, and the related
consolidated statements of operations, stockholders’ equity and cash flows for
each of the years in the three-year period ended December 26, 2009. The
Company’s management is responsible for these financial statements. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 2009, 2008 and 2007 consolidated financial
statements of Martin Yale International, GmbH, a wholly owned subsidiary, which
consolidated statements reflect total assets of $17,061, $20,347 and $22,944 and
net sales of $20,532, $26,991 and $30,943 (dollars in thousands) for 2009, 2008
and 2007, respectively, included in the related consolidated financial statement
amounts as of and for the years ended December 26, 2009, December 27, 2008, and
December 29, 2007. Those consolidated statements were audited by other
accountants, whose reports have been furnished to us and our opinion, insofar as
it relates to the amounts included for Martin Yale International, GmbH, is based
solely on the reports of the other accountants.




Our
audits also included auditing the adjustments to convert the financial
statements of Martin Yale International, GmbH into accounting principles
generally accepted in the United States of America for purposes of
consolidation.




We
conducted our audits in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audits to obtain reasonable assurance about whether the
financial statements are free of material misstatement. The Company is not
required to have, nor were we engaged to perform, an audit of its internal
control over financial reporting for 2009 and 2008. Our 2009 and 2008 audits of
the consolidated financial statements included consideration of internal control
over financial reporting as a basis for designing auditing procedures that are
appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Company’s internal control over financial
reporting. Accordingly, we express no such opinion. Our audits also included
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management and evaluating the overall financial
statement presentation. We believe that our audits and the reports of the other
accountants provide a reasonable basis for our opinion.




In our
opinion, based on our audits and the reports of the other accountants, the
consolidated financial statements referred to above present fairly, in all
material respects, the financial position of the Company as of December 26,
2009, and December 27, 2008, and the results of its operations and its cash
flows for each of the years in the three-year period ended December 26, 2009, in
conformity with accounting principles generally accepted in the United States of
America.




Evansville,
Indiana


March 5,
2010


33


FALK
& Co





Reports
of Independent Registered Public Accounting Firms




To the
Stockholders and Board of Directors of


Martin
Yale International GmbH,


Markdorf/Germany




We have
audited the accompanying balance sheet of Martin Yale International GmbH,
Markdorf/Germany (the Company) as of December 31, 2009 and December 31, 2008 and
the related statement of income for each of the three years in the three-year
period ended December 31, 2009. The financial statements are the responsibility
of the Company’s management. Our responsibility is to express an opinion on
these financial statements based on our audit.




We
conducted our audit in accordance with the standards of the Public Company
Accounting Oversight Board (United States). Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion.




In our
opinion, based on our audit, the financial statements referred to above present
fairly, in all material respects, the financial position of the Company as of
December 31, 2009 and December 31, 2008 and the result of its operations for
each of the three years in the three-year period ended December 31, 2009, in
conformity with accounting principles generally accepted in
Germany.




/s/
      FALK GmbH & Co KGWirtschaftsprüfungsgesellschaftSteuerberatungsgesellschaftHeidelberg/Germany,March
      5, 2010




34


Escalade,
Incorporated and Subsidiaries


Consolidated Balance Sheets




All
      Amounts in Thousands Except Share Information
            
            December
      26, 2009
            
            
            December
      27, 2008AssetsCurrent
      assetsCash
      and cash equivalents
            
            $
            3,039
            
            
            $
            3,617Time
      deposits
            
            
            750
            
            
            
            —Receivables,
      less allowances of $1,485 and $1,114
            
            
            23,488
            
            
            
            27,178Inventories
            
            
            20,905
            
            
            
            29,860Prepaid
      expenses
            
            
            1,617
            
            
            
            1,254Assets
      held for sale
            
            
            —
            
            
            
            3,325Deferred
      income tax benefit
            
            
            1,999
            
            
            
            2,015Prepaid
      income tax
            
            
            1,138
            
            
            
            5,327Total
      current assets
            
            
            52,936
            
            
            
            72,576Property,
      plant and equipment, net
            
            
            21,493
            
            
            
            20,209Intangible
      assets
            
            
            17,181
            
            
            
            19,153Goodwill
            
            
            26,215
            
            
            
            25,811Investments
            
            
            9,156
            
            
            
            8,129Deferred
      income tax benefit
            
            
            —
            
            
            
            723Other
      assets
            
            
            257
            
            
            
            1,100Total assets
            
            $
            127,238
            
            
            $
            147,701Liabilities
      and Stockholders’ EquityCurrent
      liabilitiesNotes
      payable—bank
            
            $
            27,644
            
            
            $
            46,525Trade
      accounts payable
            
            
            1,578
            
            
            
            3,272Accrued
      liabilities
            
            
            12,738
            
            
            
            16,698Deferred
      compensation
            
            
            1,288
            
            
            
            —Income
      tax payable
            
            
            —
            
            
            
            1,239Total
      current liabilities
            
            
            43,248
            
            
            
            67,734Deferred
      income tax liability
            
            
            1,226
            
            
            
            —Deferred
      compensation
            
            
            —
            
            
            
            1,177Total liabilities
            
            
            44,474
            
            
            
            68,911Commitments
      and contingencies
            
            
            —
            
            
            
            —Stockholders’
      equityPreferred
      stockAuthorized:
      1,000,000 shares, no par value, none issuedCommon
      stockAuthorized:
      30,000,000 shares, no par value Issued and outstanding:2009
      —12,656,737 shares, 2008 —12,616,042 shares
            
            
            12,657
            
            
            
            12,616Retained
      earnings
            
            
            65,341
            
            
            
            63,050Accumulated
      other comprehensive income
            
            
            4,766
            
            
            
            3,124Total stockholders’ equity
            
            
            82,764
            
            
            
            78,790Total liabilities and stockholders’ equity
            
            $
            127,238
            
            
            $
            147,701




See notes
to consolidated financial statements.


35


Escalade,
Incorporated and Subsidiaries


Consolidated Statements of Operations





Years EndedAll
      Amounts in Thousands Except Per Share Data
            
            December
      26, 2009
            
            
            December
      27, 2008
            
            
            December
      29, 2007Net
      Sales
            
            $
            115,999
            
            
            $
            148,686
            
            
            $
            185,576Costs,
      Expenses and Other IncomeCost
      of products sold
            
            
            82,250
            
            
            
            112,138
            
            
            
            131,389Selling,
      administrative and general expenses
            
            
            29,484
            
            
            
            39,883
            
            
            
            38,462Long-lived
      asset impairment charges
            
            
            —
            
            
            
            2,623
            
            
            
            —Amortization
            
            
            2,265
            
            
            
            2,163
            
            
            
            2,657Operating
      Income (Loss)
            
            
            2,000
            
            
            
            (8,121
            )
            
            
            13,068Interest
      expense
            
            
            (1,665
            )
            
            
            (2,025
            )
            
            
            (2,837
            )Other
      income (expense)
            
            
            2,270
            
            
            
            (34
            )
            
            
            3,991Income
      (Loss) Before Income Taxes (Benefit)
            
            
            2,605
            
            
            
            (10,180
            )
            
            
            14,222Provision
      (Benefit) for Income Taxes
            
            
            948
            
            
            
            (2,684
            )
            
            
            4,967Net
      Income (Loss)
            
            $
            1,657
            
            
            $
            (7,496
            )
            
            $
            9,255Earnings
      (Loss) Per Share DataBasic
      earnings (loss) per share
            
            $
            0.13
            
            
            $
            (0.59
            )
            
            $
            0.72Diluted
      earnings (loss) per share
            
            $
            0.13
            
            
            $
            (0.59
            )
            
            $
            0.72




See notes
to consolidated financial statements.


36


Escalade,
Incorporated and Subsidiaries


Consolidated Statements of Stockholders’ Equity




AccumulatedOtherCommon
      Stock
            
            
            Retained
            
            
            ComprehensiveAll
      Amounts in Thousands
            
            Shares
            
            
            Amount
            
            
            Earnings
            
            
            Income
            
            
            TotalBalances
      at December 30, 2006
            
            
            13,039
            
            
            $
            13,039
            
            
            $
            69,194
            
            
            $
            3,482
            
            
            $
            85,715Comprehensive
      incomeNet
      income
            
            
            
            
            
            
            
            
            
            
            9,255
            
            
            
            
            
            
            
            9,255Unrealized
      gain on securities, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            128
            
            
            
            128Foreign
      currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            2,333
            
            
            
            2,333Unrealized
      loss on interest rate swap agreement, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (120
            )
            
            
            (120
            )Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            11,596Adjustment
      to initially apply FASB ASC 740 interpretation
            
            
            
            
            
            
            
            
            
            
            (265
            )
            
            
            
            
            
            
            (265
            )Expense
      of stock options
            
            
            
            
            
            
            
            
            
            
            680
            
            
            
            
            
            
            
            680Exercise
      of stock options
            
            
            18
            
            
            
            18
            
            
            
            122
            
            
            
            
            
            
            
            140Dividend
      paid
            
            
            
            
            
            
            
            
            
            
            (2,866
            )
            
            
            
            
            
            
            (2,866
            )Stock
      issued under the director stock option plan
            
            
            15
            
            
            
            15
            
            
            
            128
            
            
            
            
            
            
            
            143Purchase
      of stock
            
            
            (399
            )
            
            
            (399
            )
            
            
            (3,002
            )
            
            
            
            
            
            
            (3,401
            )Balances
      at December 29, 2007
            
            
            12,673
            
            
            
            12,673
            
            
            
            73,246
            
            
            
            5,823
            
            
            
            91,742Comprehensive
      income (loss)Net
      income (loss)
            
            
            
            
            
            
            
            
            
            
            (7,496
            )
            
            
            
            
            
            
            (7,496
            )Foreign
      currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (2,344
            )
            
            
            (2,344
            )Unrealized
      loss on interest rate swap agreement, net of tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (35
            )
            
            
            (35
            )Realization
      of previously unrealized gains and losses on securities, net of
      tax
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (320
            )
            
            
            (320
            )Total comprehensive income (loss)
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            (10,195
            )Expense
      of stock options
            
            
            
            
            
            
            
            
            
            
            910
            
            
            
            
            
            
            
            910Exercise
      of stock options
            
            
            45
            
            
            
            45
            
            
            
            268
            
            
            
            
            
            
            
            313Dividend
      paid
            
            
            
            
            
            
            
            
            
            
            (3,174
            )
            
            
            
            
            
            
            (3,174
            )Stock
      issued to directors as compensation
            
            
            10
            
            
            
            10
            
            
            
            104
            
            
            
            
            
            
            
            114Purchase
      of stock
            
            
            (112
            )
            
            
            (112
            )
            
            
            (808
            )
            
            
            
            
            
            
            (920
            )Balances
      at December 27, 2008
            
            
            12,616
            
            
            
            12,616
            
            
            
            63,050
            
            
            
            3,124
            
            
            
            78,790Comprehensive
      incomeNet
      income
            
            
            
            
            
            
            
            
            
            
            1,657
            
            
            
            
            
            
            
            1,657Foreign
      currency translation adjustment
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            1,642
            
            
            
            1,642Total
      comprehensive income
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            
            3,299Expense
      of stock options
            
            
            
            
            
            
            
            
            
            
            588
            
            
            
            
            
            
            
            588Settlement
      of restricted stock units
            
            
            7
            
            
            
            7
            
            
            
            (7
            )
            
            
            
            
            
            
            —Stock
      issued to directors as compensation
            
            
            34
            
            
            
            34
            
            
            
            53
            
            
            
            
            
            
            
            87Balances
      at December 26, 2009
            
            
            12,657
            
            
            $
            12,657
            
            
            $
            65,341
            
            
            $
            4,766
            
            
            $
            82,764





See notes
to consolidated financial statements.


37


Escalade,
Incorporated and Subsidiaries


Consolidated Statements of Cash Flows





Years
      EndedAll
      Amounts in Thousands
            
            December
      26, 2009
            
            
            December
      27, 2008
            
            
            December
      29, 2007Operating
      ActivitiesNet
      income (loss)
            
            $
            1,657
            
            
            $
            (7,496
            )
            
            $
            9,255Adjustments
      to reconcile net income (loss) to net cash provided by (used in) operating
      activitiesDepreciation
      and amortization
            
            
            5,965
            
            
            
            5,539
            
            
            
            6,044Long-lived
      asset impairment charges
            
            
            —
            
            
            
            2,623
            
            
            
            —Available
      for sale securities impairment charges
            
            
            —
            
            
            
            884
            
            
            
            —Provision
      for doubtful accounts
            
            
            362
            
            
            
            525
            
            
            
            509Stock
      option expense
            
            
            641
            
            
            
            910
            
            
            
            680Deferred
      income taxes
            
            
            2,175
            
            
            
            (1,488
            )
            
            
            284Provision
      for deferred compensation
            
            
            110
            
            
            
            101
            
            
            
            92Deferred
      compensation paid
            
            
            —
            
            
            
            —
            
            
            
            (62
            )(Gain)
      loss on disposals of assets
            
            
            (408
            )
            
            
            731
            
            
            
            (57
            )Changes
      inAccounts
      receivable
            
            
            3,661
            
            
            
            3,028
            
            
            
            3,258Inventories
            
            
            9,059
            
            
            
            2,639
            
            
            
            1,091Prepaids
            
            
            210
            
            
            
            (1,715
            )
            
            
            (1,207
            )Other
      assets
            
            
            (2,101
            )
            
            
            2,450
            
            
            
            (1,036
            )Income
      tax payable
            
            
            2,739
            
            
            
            (4,225
            )
            
            
            1,106Accounts
      payable and accrued expenses
            
            
            (5,757
            )
            
            
            (6,418
            )
            
            
            (5,646
            )Net
      cash provided by (used in) operating activities
            
            
            18,313
            
            
            
            (1,912
            )
            
            
            14,311Investing
      ActivitiesChange
      in cash surrender value, net of loans and premiums
            
            
            —
            
            
            
            —
            
            
            
            12Purchase
      of property and equipment
            
            
            (1,894
            )
            
            
            (9,484
            )
            
            
            (2,387
            )Purchase
      of short-term time deposits
            
            
            (750
            )
            
            
            —
            
            
            
            —Acquisitions,
      net of cash acquired
            
            
            —
            
            
            
            (467
            )
            
            
            (4,177
            )Proceeds
      from sale of property and equipment
            
            
            269-
            
            
            
            33
            
            
            
            200Retirement
      of life insurance policies
            
            
            —
            
            
            
            —
            
            
            
            294Proceeds
      from sale of investments
            
            
            1,645
            
            
            
            1,501
            
            
            
            —Net
      cash used in investing activities
            
            
            (730
            )
            
            
            (8,417
            )
            
            
            (6,058
            )Financing
      ActivitiesNet
      increase (decrease) in notes payable—bank
            
            
            (18,880
            )
            
            
            33,491
            
            
            
            (777
            )Proceeds
      from exercise of stock options
            
            
            —
            
            
            
            313
            
            
            
            140Reduction
      of long-term debt
            
            
            —
            
            
            
            (19,135
            )
            
            
            —Purchase
      of stock
            
            
            —
            
            
            
            (920
            )
            
            
            (3,401
            )Cash
      dividend paid
            
            
            —
            
            
            
            (3,174
            )
            
            
            (2,866
            )Directors
      compensation
            
            
            33
            
            
            
            114
            
            
            
            143Net
      cash provided by (used in) financing activities
            
            
            (18,847
            )
            
            
            10,689
            
            
            
            (6,761
            )Effect
      of Exchange Rate Changes on Cash and Cash Equivalents
            
            
            686
            
            
            
            449
            
            
            
            (2,513
            )Increase
      (Decrease) in Cash and Cash Equivalents
            
            
            (578
            )
            
            
            809
            
            
            
            (1,021
            )Cash
      and Cash Equivalents, Beginning of Year
            
            
            3,617
            
            
            
            2,808
            
            
            
            3,829Cash
      and Cash Equivalents, End of Year
            
            $
            3,039
            
            
            $
            3,617
            
            
            $
            2,808Supplemental
      Cash Flows InformationInterest
      paid
            
            $
            1,802
            
            
            $
            2,024
            
            
            $
            2,831Income
      taxes paid
            
            $
            184
            
            
            $
            2,167
            
            
            $
            3,324




See notes
to consolidated financial statements.


38


Escalade,
Incorporated and Subsidiaries


Notes to Consolidated Financial Statements




Note
1 — Nature of Operations and Summary of Significant Accounting
Policies




Nature
of Operations


Escalade,
Incorporated and its wholly owned subsidiaries (the “Company”) are engaged in
the manufacture and sale of sporting goods and office products. The Company is
headquartered in Evansville, Indiana and has manufacturing facilities in the
United States of America, Mexico and Germany. The Company sells products to
customers throughout the world.




Principles
of Consolidation


The
consolidated financial statements include the accounts of Escalade, Incorporated
and its wholly-owned subsidiaries. All material inter-company accounts and
transactions have been eliminated.




Basis
of Presentation


The
consolidated financial statements have been prepared in accordance with
accounting principles generally accepted in the United States of America (GAAP).
The books and records of Subsidiaries located in foreign countries are
maintained according to generally accepted accounting principles in those
countries. Upon consolidation the Company evaluates the differences in
accounting principles and determines whether adjustments are necessary to
convert the foreign financial statements to the accounting principles upon which
the consolidated financial statements are based. As a result of this evaluation
no material adjustments were identified.




Fiscal
Year End


The
Company’s fiscal year is a 52 or 53 week period ending on the last Saturday in
December. Fiscal 2009, 2008 and 2007 were 52 weeks long ending on December 26,
2009, December 27, 2008 and December 29, 2007 respectively.




Cash
and Cash Equivalents


Highly
liquid financial instruments with insignificant interest rate risk and with
original maturities of three months or less are classified as cash and cash
equivalents.




Accounts
Receivable


Revenue
from the sale of the Company’s products is recognized as products are shipped to
customers and accounts receivable are stated at the amount billed to customers.
Interest and late charges billed to customers are not material and because
collection is uncertain, are not recognized until collected and are therefore
not included in accounts receivable. The Company does not offer the right of
return on any of its sales and the Company does not engage in consignment or
contingency sales. The Company provides an allowance for doubtful accounts which
is described in Note 2 – Certain Significant Estimates.




Inventories


Inventory
cost is computed on a currently adjusted standard cost basis (which approximates
actual cost on a current average or first-in, first-out basis). Work in process
and finished goods inventory are determined to be saleable based on a demand
forecast within a specific time horizon, generally one year or less. Inventory
in excess of saleable amounts is reserved, and the remaining inventory is valued
at the lower cost or market. This inventory valuation reserve totaled $3.2
million and $3.9 million at fiscal year-end 2009 and 2008, respectively.
Inventories, net of the valuation reserve, at fiscal year-ends were as
follows:




In
      Thousands
            
            2009
            
            
            2008Raw
      materials
            
            $
            6,357
            
            
            $
            9,540Work
      in process
            
            
            1,142
            
            
            
            4,506Finished
      goods
            
            
            13,406
            
            
            
            15,814$
            20,905
            
            
            $
            29,860




39


Escalade,
Incorporated and Subsidiaries


Notes
to Consolidated Financial Statements




Property, Plant and
Equipment


Property,
plant and equipment are recorded at cost. Depreciation and amortization are
computed for financial reporting purposes principally using the straight-line
method over the following estimated useful lives: buildings, 20-30 years;
leasehold improvements, term of the lease; machinery and equipment, 5-15 years;
and tooling, dies and molds, 2-4 years. Property, plant and equipment consist of
the following:




In
      Thousands
            
            2009
            
            
            2008Land
            
            $
            2,485
            
            
            $
            2,457Buildings
      and leasehold improvements
            
            
            20,446
            
            
            
            15,635Machinery
      and equipment
            
            
            31,057
            
            
            
            38,882Total
      cost
            
            
            53,988
            
            
            
            56,974Accumulated
      depreciation and amortization
            
            
            (32,495
            )
            
            
            (36,765
            )$
            21,493
            
            
            $
            20,209




The
Company evaluates the recoverability of certain long-lived assets whenever
events or changes in circumstances indicate that the carrying amount may not be
recoverable. Estimates of future cash flows used to test recoverability of
long-lived assets include separately identifiable undiscounted cash flows
expected to arise from the use and eventual disposition of the assets. Where
estimated future cash flows are less than the carrying value of the assets,
impairment losses are recognized based on the amount by which the carrying value
exceeds the fair value of the assets. The fair value of the assets was
determined based on the “held for use” classification. During 2008, the
Company’s Sporting Goods segment recognized an impairment loss of $2.6 million
related to the Reynosa, Mexico facility and equipment. This loss is included in
the long lived asset impairment charges line of the statement of operations for
that year.




Investments


Investments
are composed of the following:




In
      Thousands
            
            2009
            
            
            2008Marketable
      equity securities available for sale
            
            $
            —
            
            
            $
            1,209Non-marketable
      equity investments (equity method)
            
            
            9,156
            
            
            
            6,920$
            9,156
            
            
            $
            8,129




Marketable Equity Securities
Available for Sale. This consists of marketable equity securities
recorded at fair value. The unrealized gains and losses, net of tax, are
reported in accumulated other comprehensive income. When the fair value of an
available for sale security is less than its amortized cost for an extended
period, the Company considers whether there is an other-than-temporary
impairment in the value of the security. If based on that analysis, an
other-than-temporary impairment exists, the cost basis of the security is
written down to the then current fair value, and the unrealized loss is
transferred from accumulated other comprehensive loss as an immediate reduction
in current earnings (as if the loss had been realized in the period of
other-than-temporary impairment). During the 2008 fiscal year, the Company
recognized an other-than-temporary-impairment loss in the amount of $884
thousand on its available for sale securities. This loss is included as a
component of Other Income (Expense).




Summarized
financial data for these securities at fiscal year-end were as
follows:




In
      Thousands
            
            2009
            
            
            2008Cost
      basis
            
            $
            —
            
            
            $
            1,209Unrealized
      gain
            
            
            —
            
            
            
            —Approximate
      fair market value
            
            $
            —
            
            
            $
            1,209




40


Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements


Non-Marketable
Equity Investments


TheCompany has minority
equity positions in companies strategically related to the Company’s business,
but does not have control over these companies. The accounting method employed
is dependent on the level of ownership and degree of influence the Company can
exert on operations. Where the equity interest is less than 20% and the degree
of influence is not significant, the cost method of accounting is employed.
Where the equity interest is greater than 20% but not more than 50%, the equity
method of accounting is utilized. Under the equity method, the Company’s
proportionate share of net income (loss) is recorded in other income on the
consolidated statement of income. The proportionate share of net income was
$1,598 thousand, $1,054 thousand and $1,354 thousand in 2009, 2008 and 2007,
respectively. Total cash dividends received from these equity investments
amounted to $32 thousand, $49 thousand, and $39 thousand in 2009, 2008 and 2007,
respectively. The Company considers whether the fair value of any of its equity
investments have declined below their carrying value whenever adverse events or
changes in circumstances indicate that recorded values may not be recoverable.
If the Company considered any such decline to be other than temporary (based on
various factors, including historical financial results, product development
activities and overall health of the investments’ industry), a write-down is
recorded to estimated fair value. There was no impairment loss recognized on
equity method investments in 2009, 2008 or 2007.




Goodwill
and Intangible Assets


Goodwill
represents the excess of the purchase price over fair value of net tangible and
identifiable intangible assets of acquired businesses. Intangible assets consist
of patents, consulting agreements, non-compete agreements, customer lists, and
trademarks. Goodwill and trademarks are deemed to have indefinite lives and are
not amortized, but are subject to impairment testing annually in accordance with
guidance included in FASB ASC 350, Intangibles – Goodwill and Other. Other
intangible assets compute amortization using the straight-line method over the
following lives: consulting agreements, the life of the agreement; non-compete
agreements, the lesser of the term or 5 years; and patents, the lesser of the
remaining life or 5 to 8 years. No impairment has been recognized on goodwill or
intangible assets in 2009, 2008 or 2007.




Employee
Incentive Plan


During
2007, the Company replaced two stock-based compensation plans with a new
incentive plan more fully explained in Note 10. The Company accounts for this
plan under the recognition and measurement principles of FASB ASC 505, Equity
Based Payments.




Foreign
Currency Translation


The
functional currency for the foreign operations of Escalade is the local
currency. The translation of foreign currencies into U.S. dollars is performed
for balance sheet accounts using exchange rates in effect at the balance sheet
dates and for revenue and expense accounts using a weighted average exchange
rate during the year. The gains or losses resulting from the translation are
included in Accumulated Other
Comprehensive Incomein the Consolidated Statements of
Stockholders’ Equity and are excluded from net income (loss). Gains or
losses resulting from foreign currency transactions are included in selling, general and administrative
expense in the Consolidated Statements of Operations and were
insignificant in fiscal years 2009, 2008, and 2007.




Cost
of Products Sold


Cost of
products sold are comprised of those costs directly associated with or allocated
to the products sold and include materials, labor and factory
overhead.


41


Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements


Other
Income (Expense)


The
components of Other Income (Expense) are as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Income
      from non-marketable equity investments accounted for on the equity
      method
            
            $
            1,598
            
            
            $
            1,054
            
            
            $
            1,354Dividend
      and interest income from marketable equity securities available for
      sale
            
            
            48
            
            
            
            264
            
            
            
            390Gain
      (loss) on sale of marketable equity securities available for
      sale
            
            
            432
            
            
            
            (505
            )
            
            
            —Royalty
      income from patents
            
            
            50
            
            
            
            127
            
            
            
            639Gain
      on sale of rights to license future potential intellectual
      property
            
            
            —
            
            
            
            —
            
            
            
            1,500Impairment
      write-down on marketable securities available for sale
            
            
            —
            
            
            
            (884
            )
            
            
            —Other
            
            
            142
            
            
            
            (90
            )
            
            
            108$
            2,270
            
            
            $
            (34
            )
            
            $
            3,991




Income
Taxes


Income
tax in the consolidated statement of operations includes deferred income tax
provisions or benefits for all significant temporary differences in recognizing
income and expenses for financial reporting and income tax purposes. A valuation
allowance is established if it is more likely than not that a deferred tax asset
will not be realized.




Research
and Development


Research
and development costs are charged to expense as incurred. Research and
development costs incurred during 2009, 2008 and 2007 were approximately $2,047
thousand, $2,324 thousand, and $2,330 thousand, respectively.




Reclassifications


Certain
reclassifications have been made to prior year financial statements to conform
to the current year financial statement presentation. These reclassifications
had no effect on net earnings.




New
Accounting Pronouncements


In
December 2007, the FASB issued guidance now codified as FASB ASC 805, Business Combinations, which
changes the requirements for an acquirer’s recognition and measurement of the
assets acquired and the liabilities assumed in a business combination. FASB ASC
805 is effective for annual periods beginning after December 15, 2008 and should
be applied prospectively for all business combinations entered into after the
date of adoption. The adoption of the provisions of FASB ASC 805 did not have a
material impact on the Company’s financial position or results of
operation.




In
December 2007, the FASB issued guidance now codified as FASB ASC 810, Consolidation, which requires
(i) that noncontrolling (minority) interests be reported as a component of
shareholders’ equity, (ii) that net income attributable to the parent and to the
noncontrolling interest be separately identified in the consolidated statement
of operations, (iii) that changes in a parent’s ownership interest while the
parent retains its controlling interest be accounted for as equity transactions,
(iv) that any retained noncontrolling equity investment upon the deconsolidation
of a subsidiary be initially measured at fair value, and (v) that sufficient
disclosures are provided that clearly identify and distinguish between the
interests of the parent and the interests of the noncontrolling owners. FASB ASC
810 is effective for annual periods beginning after December 15, 2008 and should
be applied prospectively. However, the presentation and disclosure requirements
of the statement shall be applied retrospectively for all periods presented. The
adoption of the provisions of FASB ASC 810 did not have a material impact on the
Company’s financial position or results of operation.


42
 Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements


In April
2009, the FASB issued guidance now codified as FASB ASC 825, Financial Instruments,
effective for interim and annual periods ending after June 15, 2009. The
standard requires fair value disclosures of financial instruments on a quarterly
basis, as well as new disclosures regarding the methodology and significant
assumptions underlying the fair value measures and any changes to the
methodology and assumptions during the reporting period. The Company has applied
the disclosure provisions as appropriate.




In April
2009, the FASB issued guidance now codified as FASB ASC 320, Investments – Debt and Equity
Securities, which amends the other-than-temporary impairment guidance for
debt and equity securities. This guidance is effective for interim and annual
reporting periods ending after June 15, 2009. The adoption of this standard did
not have a material impact on the Company’s financial position or results of
operation.




In
December 2009, FASB issued Accounting Standards Update 2009-17, Improvements to Financial Reporting
by Enterprises with Variable Interest Entities to incorporate the changes
made by FASB Statement No. 167 into the FASB Codification The guidance in this
update is effective for periods beginning after November 15, 2009 and thus is
effective for the Company’s first quarter reporting in 2010. The adoption of
this standard is not expected to have a material impact on the Company’s
consolidated financial statements.




In
December 2009, FASB issued Accounting Standards Update 2010-02, Consolidation (Topic 810) –
Accounting and Reporting for Decreases in Ownership of a Subsidiary – A Scope
Clarification, which expands the disclosure requirements about
deconsolidation of a subsidiary or derecognition of a group of assets. The
guidance in this update is effective for periods beginning in the first interim
or annual reporting period ending on or after December 15, 2009 and thus is
effective for the Company’s first quarter reporting in 2010. The adoption of
this standard is not expected to have a material impact on the Company’s
consolidated financial statements.




Note
2 —  Certain Significant Estimates




The
preparation of consolidated financial statements in conformity with GAAP
requires management to make estimates and assumptions. These estimates and
assumptions affect the reported amounts of assets and liabilities; the
disclosure of contingent assets and liabilities at the date of the consolidated
financial statements; and the reported amounts of revenues and expenses during
the reporting period. These estimates and judgments are evaluated on an ongoing
basis and are based on experience; current and expected future conditions; third
party evaluations; and various other assumptions believed reasonable under the
circumstances. The results of these estimates form the basis for making
judgments about the carrying values of assets and liabilities as well as
identifying and assessing the accounting treatment with respect to commitments
and liabilities. Actual results may differ from the estimates and assumptions
used in the financial statements and related notes.




Listed
below are certain significant estimates and assumptions related to the
preparation of the consolidated financial statements:




Product
Warranty


The
Company provides limited warranties on certain of its products, for varying
periods. Generally, the warranty periods range from 90 days to one year.
However, some products carry extended warranties of seven-year, ten-year, and
lifetime warranties. The Company records an accrued liability and reduction in
sales for estimated future warranty claims based upon historical experience and
management’s estimate of the level of future claims. Changes in the estimated
amounts recognized in prior years are recorded as an adjustment to the accrued
liability and sales in the current year. A reconciliation of the liability is as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            896
            
            
            $
            1,208
            
            
            $
            1,141Additions
            
            
            232
            
            
            
            113
            
            
            
            621Deductions
            
            
            (391
            )
            
            
            (425
            )
            
            
            (554
            )Ending
      balance
            
            $
            737
            
            
            $
            896
            
            
            $
            1,208





43
 Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements


Inventory
Valuation Reserves


The
Company evaluates inventory for obsolescence and excess quantities based on
demand forecasts based on specified time frames; usually one year. The demand
forecast is based on historical usage, sales forecasts and current as well as
anticipated market conditions. All amounts in excess of the demand forecast are
deemed to be excess or obsolete and a reserve is established based on the
anticipated net realizable value. A reconciliation of the reserve is as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            3,943
            
            
            $
            3,573
            
            
            $
            2,668Additions
            
            
            1,042
            
            
            
            1,786
            
            
            
            1,418Deductions
            
            
            (1,833
            )
            
            
            (1,416
            )
            
            
            (513
            )Ending
      balance
            
            $
            3,152
            
            
            $
            3,943
            
            
            $
            3,573




Allowance
for Doubtful Accounts


The
Company provides an allowance for doubtful accounts based upon a review of
outstanding receivables, historical collection information and existing economic
conditions. Accounts receivable are ordinarily due between 30 and 60 days after
the issuance of the invoice. Accounts are considered delinquent when more than
90 days past due. Delinquent receivables are reserved or written off based on
individual credit evaluation and specific circumstances of the customer. A
reconciliation of the allowance is as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            1,114
            
            
            $
            1,087
            
            
            $
            1,559Additions
            
            
            1,224
            
            
            
            525
            
            
            
            509Deductions
            
            
            (853
            )
            
            
            (498
            )
            
            
            (981
            )Ending
      balance
            
            $
            1,485
            
            
            $
            1,114
            
            
            $
            1,087




Advertising
Subsidies


The
Company enters agreements with certain retailers to pay for direct advertising
programs and/or provide in-store display units. These agreements are not based
on retailer purchase volumes and do not obligate the retailer to continue
carrying the Company’s products. The Company determines the value of the
advertising services based on its own research and history of providing such
services. The Company expenses these costs in the period in which they are
incurred as a reduction of sales. A reconciliation of the liability is as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            504
            
            
            $
            1,508
            
            
            $
            1,246Additions
            
            
            170
            
            
            
            498
            
            
            
            1,458Deductions
            
            
            (536
            )
            
            
            (1,502
            )
            
            
            (1,196
            )Ending
      balance
            
            $
            138
            
            
            $
            504
            
            
            $
            1,508




44


Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements


CO-OP
Advertising


The
Company offers co-operative advertising allowances to certain retailers to
encourage product promotions. These agreements are typically based on a
percentage of retailer purchases up to a maximum allowance and the Company is
never directly involved with the media provider. The Company accrues the
estimated cost of these programs based on the sales volume of the retailer and
historical trends. As costs are accrued they are recorded as a reduction in
sales. A reconciliation of the liability is as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            2,648
            
            
            $
            3,323
            
            
            $
            3,622Additions
            
            
            1,816
            
            
            
            2,999
            
            
            
            4,070Deductions
            
            
            (3,142
            )
            
            
            (3,674
            )
            
            
            (4,369
            )Ending
      balance
            
            $
            1,322
            
            
            $
            2,648
            
            
            $
            3,323





Volume
Rebates


The
Company has various rebate programs with its retailers that are based on
purchase volume. Typically these programs are based on achieving specified sales
volumes and the rebate is calculated as a percentage of purchases. Based on the
terms of the agreement, purchase levels and historical trends the Company
accrues the cost of these programs and records the same as a reduction in sales.
A reconciliation of the liability is as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            939
            
            
            $
            862
            
            
            $
            1,612Additions
            
            
            1,582
            
            
            
            1,673
            
            
            
            1,913Deductions
            
            
            (1,595
            )
            
            
            (1,596
            )
            
            
            (2,663
            )Ending
      balance
            
            $
            926
            
            
            $
            939
            
            
            $
            862




Catalog
Allowances


A number
of large office supply dealers operate through catalogs distributed to
businesses globally. Product content is decided by the dealer each time a new
catalog is issued, typically once a year. Catalog allowances are required by the
dealer as an inducement to include the Company’s products. The allowance is
based on a fixed cost per page and/or a percentage of purchases by the dealer.
The fixed portion of the allowance is often paid when the catalog is distributed
and is recognized in the period incurred and the variable portion is accrued
based on dealer purchases and historical trends. Catalog allowances are recorded
as a reduction in sales. A reconciliation of the liability is as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Beginning
      balance
            
            $
            532
            
            
            $
            449
            
            
            $
            697Additions
            
            
            2,010
            
            
            
            1,274
            
            
            
            1,427Deductions
            
            
            (2,179
            )
            
            
            (1,191
            )
            
            
            (1,675
            )Ending
      balance
            
            $
            363
            
            
            $
            532
            
            
            $
            449


45
 Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements




Note
3 —  Accrued Liabilities




Accrued
liabilities consist of the following:




In
      Thousands
            
            2009
            
            
            2008Employee
      compensation
            
            $
            3,419
            
            
            $
            4,587Customer
      related allowances and accruals
            
            
            4,867
            
            
            
            6,807Other
      accrued items
            
            
            4,452
            
            
            
            5,304$
            12,738
            
            
            $
            16,698




Note
4 — Operating Leases




The
Company leases warehouse and office space under non-cancelable operating leases
that expire at various dates through 2014. Terms of the leases, including
renewals, taxes, utilities, and maintenance, vary by lease. Total rental expense
included in the results of operations relating to all leases was $1,716
thousand, $1,735 thousand, and $1,817 thousand in 2009, 2008, and 2007,
respectively.




At
December 26, 2009, minimum rental payments under non-cancelable leases with
terms of more than one year were as follows:




In
      Thousands
            
            Amount2010
            
            
            1,1182011
            
            
            6772012
            
            
            1182013
            
            
            402014
            
            
            32$
            1,985




Note
5 —  Acquired Intangible Assets and Goodwill




The
carrying basis and accumulated amortization of recognized intangible assets are
summarized in the following table:




2009
            
            
            2008In
      Thousands
            
            GrossCarrying
              Amount
            
            
            Accumulated
              Amortization
            
            
            GrossCarrying
              Amount
            
            
            Accumulated
              AmortizationPatents
            
            $
            22,369
            
            
            $
            10,978
            
            
            $
            22,369
            
            
            $
            9,230Consulting
      agreements
            
            
            976
            
            
            
            976
            
            
            
            976
            
            
            
            976Non-compete
      agreements
            
            
            2,197
            
            
            
            2,015
            
            
            
            2,197
            
            
            
            1,938Customer
      list
            
            
            1,971
            
            
            
            1,465
            
            
            
            1,931
            
            
            
            1,231Trademarks
            
            
            5,224
            
            
            
            122
            
            
            
            5,177
            
            
            
            122$
            32,737
            
            
            $
            15,556
            
            
            $
            32,650
            
            
            $
            13,497




Amortization
expense was $2,265 thousand, $2,163 thousand and $2,657 thousand for 2009, 2008
and 2007, respectively.


46


Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements




Estimated
future amortization expense for each reporting segment is summarized in the
following table:




In
      Thousands
            
            2010
            
            
            2011
            
            
            2012
            
            
            2013
            
            
            2014
            
            
            ThereafterSporting
      Goods
            
            $
            1,771
            
            
            $
            1,729
            
            
            $
            1,713
            
            
            $
            1,688
            
            
            $
            1,552
            
            
            $
            3,185Office
      Products
            
            
            196
            
            
            
            143
            
            
            
            81
            
            
            
            20
            
            
            
            —
            
            
            
            —$
            1,967
            
            
            $
            1,872
            
            
            $
            1,794
            
            
            $
            1,708
            
            
            $
            1,552
            
            
            $
            3,185




The
changes in the carrying amount of goodwill were:




In
      Thousands
            
            Sporting
      Goods
            
            
            Office
      Products
            
            
            TotalBalance
      at December 29, 2007
            
            $
            12,017
            
            
            $
            13,786
            
            
            $
            25,803Acquisitions
            
            
            —
            
            
            
            374
            
            
            
            374Foreign
      currency translation adjustment
            
            
            —
            
            
            
            (366
            )
            
            
            (366
            )Balance
      at December 27, 2008
            
            
            12,017
            
            
            
            13,794
            
            
            
            25,811Purchase
      price adjustment
            
            
            —
            
            
            
            191
            
            
            
            191Foreign
      currency translation adjustment
            
            
            —
            
            
            
            213
            
            
            
            213Balance
      at December 26, 2009
            
            $
            12,017
            
            
            $
            14,198
            
            
            $
            26,215




Note
6 — Equity Interest Investments




The
Company has a 50% interest in two joint ventures, Stiga Sports AB (Stiga) and
Escalade International, Ltd. These 50% owned joint ventures are accounted for
under the equity method of accounting. Stiga Sports AB, located in Sweden, is a
global sporting goods company producing table tennis equipment and game
products. Escalade International Ltd., located in the United Kingdom, is a
sporting goods wholesaler, specializing in table tennis, game tables and archery
products. Financial information for these two entities reflected in the table
below has been translated from local currency to U.S. dollar using exchange
rates in effect at the respective year-end for balance sheet amounts and using
average exchange rates for income statement amounts . Certain differences exist
between U.S. GAAP and local GAAP in Sweden and the United Kingdom, and the
impact of these differences is not reflected in the summarized information
reflected in the table below. The most significant difference relates to the
accounting for goodwill for Stiga which is amortized over eight years in Sweden
but is not amortized for U.S. GAAP reporting purposes. The effect on Stiga’s net
assets resulting from the amortization of goodwill for the years ended 2009 and
2008 are addbacks of $5.6 million and $3.7 million, respectively. These net
differences are comprised of cumulative goodwill adjustments of $7.9 million
offset by the related cumulative tax effect of $2.2 million as of December 26,
2009 and cumulative goodwill adjustments of $5.2 million offset by the related
cumulative tax effect of $1.5 million as of December 27, 2008. The income
statement impact of these goodwill and tax adjustments and other individually
insignificant U.S. GAAP adjustments for the years ended December 26, 2009,
December 27, 2008, and December 28, 2007 are to increase net income by
approximately $1.3 million, $1.8 million, and $2.6 million, respectively. In
addition, the Company has a 49.9% interest in a joint venture in Taiwan which is
reporting no income and for which its assets have no material impact on the
Company’s financial reporting. Information regarding this entity is considered
immaterial and has not been included in the combined totals listed
below.


47


Escalade, Incorporated and Subsidiaries Notes to Consolidated Financial Statements


Summarized
financial information for combined Stiga Sports AB and Escalade International,
Ltd. balance sheets as of December 31, 2009 and 2008, and statements of
operations for the years ended December 31, 2009, 2008 and 2007 is as
follows:




In
      Thousands
            
            
            
            
            2009
            
            
            2008Current
      assets
            
            
            
            
            $
            19,113
            
            
            $
            18,243Non-current
      assets
            
            
            
            
            
            11,939
            
            
            
            11,567Total
      assets
            
            
            
            
            
            31,052
            
            
            
            29,810Current
      liabilities
            
            
            
            
            
            9,296
            
            
            
            11,310Non-current
      liabilities
            
            
            
            
            
            10,104
            
            
            
            9,556Total
      liabilities
            
            
            
            
            
            19,400
            
            
            
            20,866Net
      assets
            
            
            
            
            $
            11,652
            
            
            $
            8,9442009
            
            
            2008
            
            
            2007Net
      sales
            
            $
            33,769
            
            
            $
            37,320
            
            
            $
            35,636Gross
      profit
            
            
            14,538
            
            
            
            13,830
            
            
            
            12,818Net
      income
            
            
            1,861
            
            
            
            361
            
            
            
            131




Note
7 — Borrowings




On April
30, 2009 the Company signed a loan agreement with JP Morgan Chase Bank, N.A.
(Chase) for a senior secured revolving credit facility in the maximum amount up
to $50,000,000 and through Chase London Branch, as senior secured revolving
credit facility in the maximum amount of 3,000,000 Euro upon certain terms and
conditions. The credit facilities have a maturity date of May 31, 2010. A
portion of the credit facility not in excess of $3,500,000 is available for the
issuance of commercial or standby letters of credit to be issued by Chase. The
senior secured revolving credit facility replaces the revolving line of credit
and revolving long-term debt held as of the prior year.




Short-Term Debt


Short-term
debt at fiscal year-ends was as follows:




In
      Thousands
            
            2009
            
            
            2008Senior
      secured revolving credit facility of $50,000, with a maturity of May 31,
      2010. The loan bears an interest rate of LIBOR plus 4.5%. Secured by
      substantially all assets of the Company.
            
            $
            22,067
            
            
            $
            —Senior
      secured revolving credit facility of Euro 3,000 (approximately $4,316 US
      Dollars), the balance is due May 31, 2010 and bears an interest rate of
      EURIBOR plus 4.5%, or 5.215% at December 26, 2009. Secured by
      substantially all assets of the Company.
            
            
            2,877
            
            
            
            —Revolving
      line of credit
            
            
            —
            
            
            
            12,618Short-term
      Debt
            
            
            2,700
            
            
            
            33,907$
            27,644
            
            
            $
            46,525




48


Escalade, Incorporated and Subsidiaries Notes to Consolidated Financial Statements




Long-Term Debt


Long-term
debt at fiscal year-ends was as follows:




In
      Thousands
            
            2009
            
            
            2008Revolving
      term loan of $30,000, the amount available under this revolving term loan
      is reduced by $5,000 annually starting May 31, 2009, with the balance due
      May 31, 2012. The loan bears an interest rate of prime minus .375%, or
      2.50%, at December 27, 2008, unsecured. Refinanced in
2009.
            
            $
            —
            
            
            $
            28,397Revolving
      term loan of Euro 3,000 (approximately $4,216 US Dollars), the balance is
      due May 31, 2012 and bears an interest rate of EURIBOR plus 1.50%, or
      4.90% at December 27, 2008, unsecured. Refinanced in 2009.
            
            
            —
            
            
            
            2,810Mortgage
      payable (Wabash, Indiana Adjustable Rate Economic Development Revenue
      Refunding Bonds), annual installments are optional, interest varies with
      short-term rates and is adjustable weekly based on market conditions,
      maximum rate is 10.00%, rate at December 26, 2009 is 1.4%, due September
      2028, secured by plant facility, machinery and equipment, and a stand-by
      letter of credit
            
            
            2,700
            
            
            
            2,7002,700
            
            
            
            33,907Portion
      classified as short-term debt
            
            
            (2,700
            )
            
            
            (33,907
            )$
            —
            
            
            $
            —




Interest
Rate Swap Agreement


In May
2003, the Company entered into an interest rate swap agreement having a notional
amount of $10 million and a maturity date of May 19, 2008. This swap agreement
was designated as a cash flow hedge, and effectively converted a portion of the
Company’s variable rate debt to fixed rate debt with a weighted average interest
rate of 5.08%. During 2008, the Company recorded an after tax loss of $35
thousand in Other Comprehensive Income (Loss) relating to this interest rate
swap agreement. There was no impact on net income due to ineffectiveness. The
interest rate swap agreement, which matured May 19, 2008, was not
renewed.




Note
8 —  Earnings Per Share




The
shares used in the computation of the Company’s basic and diluted earnings per
common share are as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Weighted
      average common shares outstanding.
            
            
            12,632
            
            
            
            12,637
            
            
            
            12,901Dilutive
      effect of stock options
            
            
            239
            
            
            
            47
            
            
            
            14Weighted
      average common shares outstanding, assuming dilution
            
            
            12,871
            
            
            
            12,684
            
            
            
            12,915Number
      of anti-dilutive stock options
            
            
            30
            
            
            
            391
            
            
            
            395




49


Escalade, Incorporated and Subsidiaries


Notes to Consolidated Financial Statements




Weighted
average common shares outstanding, assuming dilution, includes the incremental
shares that would be issued upon the assumed exercise of stock options
outstanding.




Note
9 — Employee Benefit Plans




The
Company has an employee profit-sharing salary reduction plan, pursuant to the
provisions of Section 401(k) of the Internal Revenue Code, for non-union
employees. The Company’s contribution is a matching percentage of the employee
contribution as determined by the Board of Directors annually. The
Company’s expense for the plan was $132 thousand, $542 thousand and $527
thousand for 2009, 2008 and 2007, respectively.




Note
10 — Deferred Compensation Plan




In
October 1985, the Board of Directors approved the adoption of a Contributory
Deferred Compensation Plan pursuant to which some recipients of incentive
compensation could elect to defer receipt thereof. For each dollar of deferred
compensation, the Company provided a 75% matching amount. All deferrals allowed
under this plan have been made and amounts deferred earn interest at the rate of
9%. Mr. Robert Griffin, Chairman of the Board, is the only remaining participant
in the Plan. Plan balances are not intended to be recognized for tax purposes
until receipt. Participants have no secured rights in deferred amounts credited
to their accounts and are general creditors of the Company until such amounts
are actually paid. Mr. Griffin has expressed an intention to retire from
employment with Escalade, Incorporated in 2010. The Board approved that, upon
his retirement, the deferred compensation balance owed to him will be paid out
in cash.




Note
11 — Stock Compensation Plans


In April
2007, Shareholders approved the Escalade, Incorporated 2007 Incentive Plan
(“2007 Incentive Plan”), which is an incentive plan for key employees, directors
and consultants with various equity-based incentives as described in the plan
document. The 2007 Incentive Plan is a replacement for the 1997 Incentive Stock
Option Plan and the 1997 Director Stock Compensation and Option Plan which
expired at the end of April 2007. All options issued and outstanding under the
expired plans will remain in effect until exercised, expired or
forfeited.
  The 2007
Incentive Plan is administered by the Board of Directors or a committee thereof,
which is authorized to determine, among other things, the key employees,
directors or consultants who will receive awards under the plan, the amount and
type of award, exercise prices or performance criteria, if applicable, and
vesting schedules. Subject to various restrictions contained in the plan
document, the total number of shares of common stock which may be issued
pursuant to awards under the Plan may not exceed 1,282,415 shares.
  Restricted
Stock Units
 In 2009,
2008, and 2007, the Company granted restricted stock units to certain officers
and directors of the Company at fair market value on the date of grant. The
restricted stock units granted to employees of the Company vest over three to
four years and are dependent on certain market criteria. The restricted stock
units granted to directors vest immediately or within two years. All restricted
stock units are payable in shares of the Company’s common stock upon vesting,
subject to the deferral election arrangement, and are subject to forfeiture if
on the vesting date the employee is not employed or the director no longer holds
a position with the Company.


50
 Escalade, Incorporated and Subsidiaries Notes to Consolidated Financial Statements
 The
Company issued no restricted stock units to employees in 2009 and 138,500
restricted stock units to employees in 2008 and 54,103 and 34,206 restricted
stock units to directors in 2009 and 2008, respectively. The following table
presents a summary of non-vested restricted stock units granted to employees and
directors as of December 26, 2009, and changes during the year ended December
26, 2009:


Number
      of Shares
            
            
            Weighted-Average
      Grant Date Fair ValueNon-vested
      restricted stock units as of December 27, 2008
            
            
            241,125
            
            
            $
            5.76Granted
            
            
            54,103
            
            
            $
            0.82Vested
            
            
            (61,603
            )
            
            $
            1.42Forfeited
            
            
            (48,375
            )
            
            $
            5.76Non-vested
      restricted stock units as of December 26, 2009
            
            
            185,250
            
            
            $
            5.76Vested
      but unsettled
            
            
            85,751Outstanding
      restricted stock units as of December 26, 2009
            
            
            271,001


When
vesting is dependent on certain market criteria, the fair value of restricted
stock units is determined by the use of Monte Carlo techniques. The market price
of the Company’s stock on the grant date is used to value restricted stock units
where vesting is not contingent on market criteria. In 2009 and 2008, the
Company recognized $504 and $496 thousand, respectively in compensation expense
related to restricted stock units and as of December 26, 2009 and December 27,
2008, there was $354 and $814 thousand, respectively of unrecognized
compensation expense related to restricted stock units.
  Stock
Options


Total
compensation expense recorded in the statement of operations for 2009, 2008 and
2007 relating to stock options was $84, $414 and $480 thousand, respectively.
The recognized tax benefit related thereto was $0, $0 and $31 thousand for 2009,
2008 and 2007, respectively.




At the
February 23, 2010 meeting of the Board of Directors, the Board voted to approve
director stock options of 30,000, and employee incentive stock options of
300,000. The director and employee options have a one year vesting and four
year-tiered vesting, respectively, and all options expire in five
years.




The
following table summarizes option activity for each of the three years ended
2009:




Incentive
      Stock Options
            
            Director
      Stock OptionsGranted
            
            Outstanding
            
            Granted
            
            Outstanding2009
            
            682,000
            
            
            791,000
            
            
            30,000
            
            
            51,6002008
            
            —
            
            
            366,500
            
            
            —
            
            
            24,3672007
            
            —
            
            
            417,850
            
            
            6,524
            
            
            28,493




The fair
value of each option grant award is estimated on the grant date using the
Black-Scholes-Merton option valuation model using the following
assumptions:




2009
            
            
            2008
            
            
            2007Risk-free
      interest rates
            
            1.15%
      to 1.38%
            
            
            —
            
            
            4.35%Dividend
      yields
            
            0%
            
            
            —
            
            
            2.26%Volatility
      factors of expected market price of common stock
            
            81.34%
      to 94.93%
            
            
            —
            
            
            42.6%Weighted
      average expected life of the options
            
            1-3
      years
            
            
            —
            
            
            3
      years




51


Escalade, Incorporated and Subsidiaries Notes to Consolidated Financial Statements




The
following table summarizes stock option transactions for the three years ended
2009:




2009
            
            
            2008
            
            
            2007Shares
            
            
            Option
              Price
            
            
            Shares
            
            
            Option
              Price
            
            
            Shares
            
            
            Option
              PriceOutstanding
      at beginning of year
            
            
            390,867
            
            
            $
            6.99
      to 19.21
            
            
            
            446,343
            
            
            $
            6.99
      to 19.21
            
            
            
            544,586
            
            
            $
            6.99
      to 19.21Issued
      during year
            
            
            712,000
            
            
            $
            0.64
      to $0.89
            
            
            
            —
            
            
            
            —
            
            
            
            6,524
            
            
            $
            9.35Canceled
      or expired
            
            
            (260,267
            )
            
            
            
            
            
            
            (10,726
            )
            
            
            
            
            
            
            (86,422
            )Exercised
      during year
            
            
            —
            
            
            
            
            
            
            
            (44,750
            )
            
            $
            6.99
      to 9.03
            
            
            
            (18,345
            )
            
            $
            6.99
      to 9.03Outstanding
      at end of year
            
            
            842,600
            
            
            $
            0.64
      to 13.40
            
            
            
            390,867
            
            
            $
            6.99
      to 19.21
            
            
            
            446,343
            
            
            $
            6.99
      to 19.21Exercisable
      at end of year
            
            
            191,850
            
            
            
            
            
            
            
            314,117
            
            
            
            
            
            
            
            307,694Weighted-average
      fair value of options granted during the year
            
            $
            0.38
            
            
            
            
            
            
            $
            —
            
            
            
            
            
            
            $
            2.70




The
following table summarizes information about stock options outstanding at
December 26, 2009:




Options
      Outstanding
            
            
            Options
      ExercisableRange
      of
              Exercise
      Prices
            
            
            Number
      of
              Shares
            
            Weighted-Average
              Remaining
              Contractual
      Life
            
            Weighted-Average
              Exercise
      Price
            
            
            Number
      of
              Shares
            
            
            Weighted-Average
              Exercise
      Price$0.64
      - $0.89
            
            
            
            637,000
            
            4.3
      years
            
            $
            0.66
            
            
            
            —
            
            
            
            —$9.35
      - $11.26
            
            
            
            110,600
            
            1.2
      years
            
            $
            11.00
            
            
            
            96,850
            
            
            $
            10.99$13.40
            
            
            
            95,000
            
            0.2
      years
            
            $
            13.40
            
            
            
            95,000
            
            
            $
            13.40842,600
            
            
            
            
            
            
            
            
            191,850




Note
12 — Other Comprehensive Income (Loss)




The
components of other comprehensive income (loss) and related tax effects were as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Change
      in net unrealized value of available-for-sale investments net of tax of
      $0, $0, and $(85), in 2009, 2008 and 2007, respectively
            
            $
            —
            
            
            $
            —
            
            
            $
            128Realization
      of previously unrealized gains on available-for-sale investments net of
      tax of $0, $210, and $0 in 2009, 2008 and 2007,
    respectively
            
            
            —
            
            
            
            (320
            )
            
            
            —Change in foreign currency translation adjustment
            
            
            1,642
            
            
            
            (2,344
            )
            
            
            2,333Change
      in unrealized loss on interest rate swap agreement net of tax of $0, $23,
      and $78, in 2009, 2008 and 2007, respectively
            
            
            —
            
            
            
            (35
            )
            
            
            (120
            )$
            1,642
            
            
            $
            (2,699
            )
            
            $
            2,341




52


Escalade, Incorporated and Subsidiaries Notes to Consolidated Financial Statements





The
components of accumulated other comprehensive income, net of tax, were as
follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Accumulated
      gain on available for sale investments
            
            $
            —
            
            
            $
            —
            
            
            $
            320Foreign
      currency translation adjustment
            
            
            4,766
            
            
            
            3,124
            
            
            
            5,468Unrealized
      gain on interest rate swap agreement
            
            
            —
            
            
            
            —
            
            
            
            35$
            4,766
            
            
            $
            3,124
            
            
            $
            5,823




Note
13 — Provision for Taxes




Income
before taxes and the provision for taxes consisted of the
following:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Income
      (loss) before taxes:United
      States of America (USA)
            
            $
            3,359
            
            
            $
            (10,106
            )
            
            $
            10,482Non
      USA
            
            
            (754
            )
            
            
            (74
            )
            
            
            3,740$
            2,605
            
            
            $
            (10,180
            )
            
            $
            14,222Provision
      for taxes:CurrentFederal
            
            $
            (906
            )
            
            $
            (2,575
            )
            
            $
            3,745State
            
            
            (685
            )
            
            
            804
            
            
            
            428International
            
            
            364
            
            
            
            575
            
            
            
            510(1,227
            )
            
            
            (1,196
            )
            
            
            4,683DeferredFederal
            
            
            1,686
            
            
            
            (774
            )
            
            
            112State
            
            
            964
            
            
            
            (714
            )
            
            
            30International
            
            
            (475
            )
            
            
            —
            
            
            
            1422,175
            
            
            
            (1,488
            )
            
            
            284$
            948
            
            
            $
            (2,684
            )
            
            $
            4,967




The
Company has not provided for USA deferred taxes or foreign withholding taxes on
undistributed earnings for non-USA subsidiaries where the Company intends to
reinvest these earnings indefinitely in operations outside the USA.





The
provision for income taxes was computed based on financial statement income. A
reconciliation of the provision for income taxes to the amount computed using
the statutory rate follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007Income
      tax at statutory rate
            
            $
            886
            
            
            $
            (3,461
            )
            
            $
            4,835Increase
      (decrease) in income tax resulting fromPermanent
      differences (investment income, dividends, and captive insurance
      earnings)
            
            
            (162
            )
            
            
            117
            
            
            
            (79
            )State
      tax expense, net of federal effect
            
            
            184
            
            
            
            (125
            )
            
            
            302Effect
      of foreign tax rates
            
            
            (188
            )
            
            
            391
            
            
            
            (620
            )Research
      credit
            
            
            —
            
            
            
            —
            
            
            
            (60
            )Foreign
      income repatriation (Section 956 inclusion)
            
            
            —
            
            
            
            —
            
            
            
            1,035Other
            
            
            228
            
            
            
            394
            
            
            
            (446
            )Recorded
      provision for income taxes
            
            $
            948
            
            
            $
            (2,684
            )
            
            $
            4,967




53





Escalade, Incorporated and Subsidiaries


Notes to Consolidated Financial Statements







In
      Thousands
            
            2009
            
            
            2008Balance,
      beginning of year
            
            $
            954
            
            
            $
            118Additions
      for current year tax positions
            
            
            —
            
            
            
            863Additions
      for prior year tax positions
            
            
            —
            
            
            
            —Settlements
            
            
            —
            
            
            
            —Reductions
      Settlements
            
            
            —
            
            
            
            —Reductions
      for prior year tax positions
            
            
            (418
            )
            
            
            (27
            )Balance,
      end of year
            
            $
            536
            
            
            $
            954




Interest
costs and penalties related to income taxes are classified as interest expense
and selling, general and administrative costs, respectively in the Company’s
financial statements. The Company and its subsidiaries file income tax returns
in the U.S. federal jurisdiction, and multiple state and foreign jurisdictions.
The Company is subject to future examinations by federal tax authorities for all
years after 2006 and state and other tax authorities for all years after
2005.




The
components of the net deferred tax assets are as follows:




In
      Thousands
            
            2009
            
            
            2008AssetsEmployee
      benefits
            
            $
            29
            
            
            $
            99Valuation
      allowances
            
            
            2,034
            
            
            
            2,261Deferred
      compensation
            
            
            507
            
            
            
            464Property
      and equipment
            
            
            24
            
            
            
            1,559Stock
      based compensation
            
            
            469
            
            
            
            274Federal
      and state credits
            
            
            507
            
            
            
            —Net
      operating loss carry forward
            
            
            6,914
            
            
            
            1,446Total
      assets
            
            
            10,484
            
            
            
            6,103LiabilitiesUnrealized equity investment income
            
            
            (1,225
            )
            
            
            (902
            )Goodwill and intangible assets
            
            
            (1,631
            )
            
            
            (1,162
            )Total
      liabilities
            
            
            (2,856
            )
            
            
            (2,064
            )Valuation
      AllowanceBeginning balance
            
            
            (1,301
            )
            
            
            (1,114
            )Increase during period
            
            
            (5,554
            )
            
            
            (187
            )Ending balance
            
            
            (6,855
            )
            
            
            (1,301
            )$
            773
            
            
            $
            2,738




Deferred
tax assets are included in the consolidated balance sheets as
follows:




In
      Thousands
            
            2009
            
            
            2008Deferred
      income tax asset - current
            
            $
            1,999
            
            
            $
            2,015Deferred
      income tax asset (liability) – long-term
            
            
            (1,226
            )
            
            
            723$
            773
            
            
            $
            2,738




The
Company has a US federal unused net operating loss carry-forward of
approximately $270 thousand and state unused net operating losses of
approximately $10.1 million of which an estimated $7.2 million has been reserved
as the Company does not expect to be able to utilize these. All operating loss
carry-forwards expire in various amounts through 2022. In addition, the Company
has foreign unused net operating loss carry-forwards of approximately $19.8
million of which an estimated $18.3 million has been reserved.


54


Escalade, Incorporated and Subsidiaries Notes to Consolidated Financial Statements





Note
14 — Operating Segment and Geographic Information




The
following table presents certain operating segment information.




In
      Thousands
            
            
            2009
            
            
            2008
            
            
            2007Sporting
      GoodsNet
      revenue
            
            
            76,807
            
            
            
            98,039
            
            
            
            129,788Operating
      income (loss)
            
            
            4,610
            
            
            
            (6,250
            )
            
            
            7,745Interest
      expense
            
            
            2,673
            
            
            
            1,568
            
            
            
            1,355Provision
      (benefit) for taxes
            
            
            715
            
            
            
            (3,054
            )
            
            
            3,005Net
      income (loss)
            
            
            1,273
            
            
            
            (5,428
            )
            
            
            5,341Identifiable
      assets
            
            
            67,528
            
            
            
            78,593
            
            
            
            87,634Non-marketable
      equity investments (equity method)
            
            
            —
            
            
            
            —
            
            
            
            —Depreciation
      & amortization
            
            
            3,217
            
            
            
            3,784
            
            
            
            4,264Capital
      expenditures
            
            
            792
            
            
            
            2,261
            
            
            
            1,325Office
      ProductsNet
      revenue
            
            
            39,192
            
            
            
            50,647
            
            
            
            55,788Operating
      income
            
            
            1,780
            
            
            
            3,930
            
            
            
            8,809Interest
      expense
            
            
            (208
            )
            
            
            (256
            )
            
            
            185Provision
      for taxes
            
            
            988
            
            
            
            2,037
            
            
            
            2,810Net
      income
            
            
            1,077
            
            
            
            1,835
            
            
            
            5,617Identifiable
      assets
            
            
            40,105
            
            
            
            44,306
            
            
            
            47,623Non-marketable
      equity investments (equity method)
            
            
            341
            
            
            
            336
            
            
            
            772Depreciation
      & amortization
            
            
            1,576
            
            
            
            1,755
            
            
            
            1,780Capital
      expenditures
            
            
            640
            
            
            
            582
            
            
            
            1,062All
      OtherNet
      revenue
            
            
            —
            
            
            
            —
            
            
            
            —Operating
      income (loss)
            
            
            (4,390
            )
            
            
            (5,801
            )
            
            
            (3,486
            )Interest
      expense
            
            
            (800
            )
            
            
            713
            
            
            
            1,297Provision
      (benefit) for taxes
            
            
            (755
            )
            
            
            (1,667
            )
            
            
            (848
            )Net
      income (loss)
            
            
            (693
            )
            
            
            (3,903
            )
            
            
            (1,703
            )Identifiable
      assets
            
            
            19,605
            
            
            
            24,802
            
            
            
            16,759Non-marketable
      equity investments (equity method)
            
            
            8,815
            
            
            
            6,584
            
            
            
            7,205Depreciation
      & amortization
            
            
            1,172
            
            
            
            —
            
            
            
            —Capital
      expenditures
            
            
            462
            
            
            
            6,641
            
            
            
            —TotalNet
      Revenue
            
            
            115,999
            
            
            
            148,686
            
            
            
            185,576Operating
      income (loss)
            
            
            2,000
            
            
            
            (8,121
            )
            
            
            13,068Interest
      expense
            
            
            1,665
            
            
            
            2,025
            
            
            
            2,837Provision
      (benefit) for taxes
            
            
            948
            
            
            
            (2,684
            )
            
            
            4,967Net
      income (loss)
            
            
            1,657
            
            
            
            (7,496
            )
            
            
            9,255Identifiable
      assets
            
            
            127,238
            
            
            
            147,701
            
            
            
            152,016Non-marketable
      equity investments (equity method)
            
            
            9,156
            
            
            
            6,920
            
            
            
            7,977Depreciation
      & amortization
            
            
            5,965
            
            
            
            5,539
            
            
            
            6,044Capital
      expenditures
            
            
            1,894
            
            
            
            9,484
            
            
            
            2,387




Each
operating segment is individually
managed and has separate financial results that are reviewed by the Company’s
management. Each segment contains
closely related products that are unique to the particular segment. There were no changes to the
composition of segments in 2009. The accounting policies of the reportable
segments are the same as those described in the summary of significant
accounting policies.


55


Escalade, Incorporated and Subsidiaries


Notes to Consolidated Financial Statements





The
sporting goods segment consists of home entertainment products such as table
tennis tables and accessories; basketball goals; pool tables and accessories;
outdoor playsets; soccer and hockey tables; archery equipment and accessories;
basketball goals; and fitness, arcade and darting products. Customers include
retailers, dealers and wholesalers located throughout the United States and
Europe.




The
office products segment consists of office machinery used in the office and
graphic arts environment. Products include data shredders; folding machines; and
paper trimmers and cutters. Customers include large office product retailers,
office machine dealers, and office supply catalogs.




The all
other segment consists of general and administrative expenses not specifically
related to the operating business segments and includes investment income from
equity investments.




Interest
expense is allocated to operating segments based on working capital usage and
the provision for taxes is allocated based on a combined federal and state
statutory rate of 36% adjusted for actual taxes on foreign income. Permanent tax
adjustments and timing differences are included in the all other
segment.




Identifiable
assets are principally those assets used in each segment. The assets in the all
other segment are principally cash and cash equivalents; deferred tax assets;
and investments.




The
Company has one customer in 2009 in the sporting goods segment who accounted for
15% of consolidated total revenues and one customer in 2008 and 2007 who
accounted for 6% and 18% of consolidated total revenues, respectively. No other
customers accounted for 10% or more of consolidated revenues. Within the
sporting goods segment these customers accounted for 22%, 9% and 26% of total
revenues in 2009, 2008 and 2007, respectively.




As of
December 26, 2009, approximately 15 employees of the Company’s labor force were
covered by a collective bargaining agreement that expires April 30,
2012.




Raw
materials for Escalade’s various product lines consist of wood, particleboard,
slate, standard grades of steel, steel tubing, plastic, vinyl, steel cables,
fiberglass and packaging. Escalade relies upon suppliers in Europe and Brazil
for its requirement of billiard balls and slate utilized in the production of
home pool tables and upon various Asian manufacturers for certain of its table
tennis needs and other items. Escalade sources some of its game table product
line in China.




Revenues
by geographic region/country were as follows:





In
      Thousands
            
            2009
            
            
            2008
            
            
            2007North
      America
            
            $
            95,723
            
            
            $
            122,530
            
            
            $
            157,148Europe
            
            
            13,033
            
            
            
            19,566
            
            
            
            22,540Other
            
            
            7,243
            
            
            
            6,590
            
            
            
            5,888$
            115,999
            
            
            $
            148,686
            
            
            $
            185,576




Revenues
are attributed to country based on location of customer and are for continuing
operations.




Identified
assets by geographic region/country were as follows:




In
      Thousands
            
            2009
            
            
            2008
            
            
            2007North
      America
            
            $
            100,643
            
            
            $
            119,417
            
            
            $
            121,791Europe
            
            
            26,595
            
            
            
            28,284
            
            
            
            30,225$
            127,238
            
            
            $
            147,701
            
            
            $
            152,016




56


Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial Statements





Note
15 — Summary of Quarterly Results




In
      thousands, except per share data (unaudited)
            
            March
      21
            
            
            July
      11
            
            
            October
      3
            
            
            December
      262009Net
      sales
            
            $
            24,958
            
            
            $
            35,641
            
            
            $
            26,358
            
            
            $
            29,042Operating
      income (loss)
            
            
            (628
            )
            
            
            1,374
            
            
            
            612
            
            
            
            642Net
      income (loss)
            
            
            (439
            )
            
            
            366
            
            
            
            618
            
            
            
            1,112Basic
      earnings per share
            
            $
            (0.03
            )
            
            $
            0.03
            
            
            $
            0.05
            
            
            $
            0.08In
      thousands, except per share data (unaudited)
            
            March
      22
            
            
            July
      12
            
            
            October
      4
            
            
            December
      272008Net
      sales
            
            $
            29,166
            
            
            $
            45,796
            
            
            $
            40,797
            
            
            $
            32,927Operating
      income (loss)
            
            
            (1,056
            )
            
            
            (789
            )
            
            
            82
            
            
            
            (6,358
            )Net
      loss
            
            
            (848
            )
            
            
            (704
            )
            
            
            (1,365
            )
            
            
            (4,579
            )Basic
      earnings per share
            
            $
            (0.07
            )
            
            $
            (0.06
            )
            
            $
            (
      0.11
            )
            
            $
            (0.35
            )




Note
16 — Acquisitions




All of
the Company’s acquisitions have been accounted for using the purchase method of
accounting.




2008




In March
2008, the Company acquired the remaining 50% stock shares of Action Group, which
is a dealer of office supplies in South Africa. The total price of $125 thousand
was paid in cash using the Company’s revolving credit lines and was composed of
customer lists and goodwill.




In June
2008, the Company acquired 100% of the stock shares of Safe Tech Sweden AB,
which is a distributor of office supplies. The total price of $342 thousand was
paid in cash using the Company’s revolving credit lines and was composed of
customer lists, goodwill and other assets.




2007




In
February 2007, the Company purchased substantially all of the assets of Trophy
Ridge, LLC, which manufactures and sells premium archery accessories under the
Trophy Ridge brand name. The Trophy Ridge brand name has significant appeal in
the sports enthusiast market place and will be used to further expand
distribution of the Company’s archery accessory products. The Trophy Ridge
operation has been relocated and consolidated into the Company’s existing
archery operations in the Gainesville, Florida plant. The operating results of
Trophy Ridge are included in the Sporting Goods segment results from the date of
acquisition. The purchase price of $3.8 million was paid in cash. The estimated
fair market value of the assets acquired as of the date of acquisition is as
follows:




(Amounts
      in thousands)
            
            AmountCurrent
      assets
            
            $
            1,083Property,
      plant & equipment
            
            
            170Other
      assets
            
            
            125Patents
      & Trademarks
            
            
            2,419Net
      assets acquired
            
            $
            3,797




57


Escalade, Incorporated and Subsidiaries


Notes to Consolidated Financial Statements





In
December 2007, the Company purchased substantially all of the assets of Piston
Point, Inc. which distributed a unique broadhead arrow point. The piston point
arrow head will be sold through the Company’s Sporting Goods business. The total
price of $512 thousand was paid in cash using the Company’s revolving credit
lines and was primarily composed of patents related to the piston point arrow
head.




Note
17 —  Commitments and Contingencies




The
Company has obtained a letter of credit for the benefit of a certain mortgage
holder. At December 26, 2009, the balance of the letter of credit was $2,734
thousand. It is to be used in the event of a default in either interest or
principal payments.




The
Company is involved in litigation arising in the normal course of its business.
The Company does not believe that the disposition or ultimate resolution of
existing claims or lawsuits will have a material adverse effect on the business
or financial condition of the Company.




The
Company has entered into various agreements whereby it is required to make
royalty and license payments. At December 26, 2009, the Company had future
estimated minimum non-cancelable royalty and license payments as
follows:





In
      Thousands
            
            Amount2010
            
            $
            3502011
            
            
            3502012
            
            
            4502013
            
            
            3502014
            
            
            375$
            1,875




Note
18 — Fair Values of Financial Instruments




The
following methods were used to estimate the fair value of all financial
instruments recognized in the accompanying balance sheets at amounts other than
fair values.




Cash
and Cash Equivalents and Time Deposits




Fair
values of cash and cash equivalents and time deposits approximate cost due to
the short period of time to maturity.




Notes
Payable and Long-term Debt




As of
December 26, 2009, the Company does not have debt classified as long-term. The
Company believes the carrying value of short-term debt adequately reflects the
fair value of these instruments.


58


Escalade, Incorporated and Subsidiaries
 Notes to Consolidated Financial
Statements





The
following table presents estimated fair values of the Company’s financial
instruments in accordance with FASB ASC 480 at December 26, 2009 and December
27, 2008.




In
      Thousands
            
            2009
            
            
            2008Carrying
      Amount
            
            
            Fair
      Value
            
            
            Carrying
      Amount
            
            
            Fair
      ValueFinancial
      assetsCash
      and cash equivalents
            
            $
            3,039
            
            
            $
            3,039
            
            
            $
            3,617
            
            
            $
            3,617Time
      deposits
            
            $
            750
            
            
            $
            750
            
            
            $
            —
            
            
            $
            —Available-for-sale
      securities
            
            $
            —
            
            
            $
            —
            
            
            $
            1,209
            
            
            $
            1,209Financial liabilitiesNote payable and Short-term debt
            
            $
            27,644
            
            
            $
            27,644
            
            
            $
            46,525
            
            
            $
            46,525




Note
19 — Management’s Plan With Respect to Current Economic
Conditions




The
Company operates in an industry which has been adversely affected by the current
economic conditions. As a result of the external economic conditions, the
Company experienced significant declines in sales revenues for fiscal year 2009
and expects sales levels for fiscal year 2010 to be similar to 2009. In response
to the challenging economic environment, management began implementing a series
of cost reduction measures during fiscal year 2008 which have continued into
2009 and 2010. The Company has consolidated three of its Sporting Goods
production facilities into one location, reducing its personnel costs by
eliminating positions and reducing certain salaries and benefits and freezing
all wages and the hiring of additional personnel. The Company will continue to
evaluate its product mix and pricing structure and will make adjustments as
necessary to reduce or eliminate low margin products.






The
Company believes that cash generated from its projected 2010 operations, the
potential sale of its Reynosa facility, income tax refunds and the continued
availability of borrowings from its primary lender will provide it with
sufficient cash flows for its operations.


59


Signatures




Pursuant
to the requirements of Section 13 or 15(d) of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its behalf by
the undersigned, thereunto duly authorized.




ESCALADE,
      INCORPORATEDBy:
            /s/
      Robert. Keller
            
            
            March
      5, 2010Robert
      J. KellerPresident
      and Chief Executive Officer




Pursuant
to the requirements of the Securities Exchange Act of 1934, this report has been
signed below by the following persons on behalf of the Registrant and in the
capacities and on the dates indicated.




/s/
      Robert E. Griffin
            
            Chairman
      and Director
            
            March
      5, 2010Robert
      E. Griffin/s/
      Blaine E. Matthews, Jr.
            
            Director
            
            March
      5, 2010Blaine
      E. Matthews, Jr./s/
      Edward E. Williams
            
            Director
            
            March
      5, 2010Edward
      E. Williams/s/
      Richard D. White
            
            Director
            
            March
      5, 2010Richard
      D. White/s/
      George Savitsky
            
            Director
            
            March
      5, 2010George
      Savitsky/s/
      Richard Baalmann
            
            Director
            
            March
      5, 2010Richard
      Baalmann/s/
      Patrick Griffin
            
            Director
      and President Martin Yale Global
            
            March
      5, 2010Patrick
      Griffin/s/
      Robert J. Keller
            
            President
      and Chief Executive Officer
            
            March
      5, 2010Robert
      J. Keller
            
            (Principal
      Executive Officer)/s/
      Deborah J. Meinert
            
            Vice
      President and Chief Financial Officer
            
            March
      5, 2010Deborah
      J. Meinert
            
            (Principal
      Financial and Accounting Officer)




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